Picture supply: Getty Photos
The demand for lithium is rising considerably as electrical automobiles (EVs) powered by lithium-ion batteries go mainstream throughout the globe. This seems to be like one of many largest traits of this century. So ought to I be investing in lithium miners inside my Shares and Shares ISA subsequent yr?
The bull case
The case for proudly owning lithium shares boils all the way down to the vitality transition. This seismic shift would require the large-scale deployment of fresh vitality applied sciences, and lithium-ion batteries are important for storing vitality generated from renewable sources resembling photo voltaic and wind.
Moreover, there’s the unstoppable rise of EVs. In line with Bloomberg, there may very well be as many as 700m EVs globally by 2040, up from 27m on the finish of 2022.
Information from Benchmark Mineral Intelligence suggests the world will want greater than 20 instances the quantity of lithium mined in 2021 to fulfill demand by 2050.
The bear case
These projections make me wish to load up on lithium shares proper now! Nonetheless, there are some issues to contemplate.
First, after hovering to all-time highs final yr, lithium costs collapsed in 2023. This was resulting from a provide glut mixed with greater rates of interest negatively impacting demand for brand new EVs.
This inherent cyclicality is unavoidable when investing in lithium producers. They’ve little or no management over the value of the commodity, so their income (and due to this fact dividends and share costs) can swing wildly from one yr to the following.
For instance, in Q3 2023, Chilean lithium big Sociedad Quimica y Minera de Chile (or SQM) reported a forty five% year-on-year fall in income for lithium and derivatives.
Subsequent, I’d spotlight political threat, particularly in Chile, which has the world’s largest reserves of lithium.
The Chilean authorities desires to create a nationwide firm that calls the pictures in partnership with miners. Experiences counsel SQM may even lose its operations as soon as its contract expires in 2030.
To me, this muddies the waters and presents important threat.
Lastly, there’s at all times the chance {that a} new expertise breakthrough reduces long-term demand for lithium.
UK shares
Whereas the most important pureplays are listed overseas, there are some lithium producers listed within the UK.
Under are three well-liked ones that may be price contemplating, although all of them include their very own particular person dangers. I definitely wouldn’t be backing up the truck.
| Market cap | Operations | |
| Atlantic Lithium | £139m | Ghana, West Africa |
| Kodal Minerals | £82m | Mali, West Africa |
| CleanTech Lithium | £31m | Chile, South America |
Security in numbers
Talking personally, I don’t have the time or inclination to intently monitor political developments in Chile or West Africa. And that is clearly what I’d should do if I used to be invested in a lithium miner there.
But it is a large potential progress market, so I don’t need my ISA to overlook out, particularly as I count on lithium costs to development greater over time as international demand surges.
So, I’m completely happy to get this publicity from BlackRock World Mining Belief, which manages a diversified international mining portfolio. The belief faces the identical cyclicality points as all miners, however I want its security in numbers.
It has Rio Tinto as a prime holding. The FTSE 100 miner, already an iron ore big, is dedicated to considerably increasing its lithium operations.
