Investors who bought Australian lithium stocks at the start of the year could have doubled their money or lost more than half of it — reflecting the extreme volatility of companies mining one of the world’s hottest commodities.

Lithium mining is dominated by small and mid-sized firms in Australia, the world’s No.1 producer of the critical electric vehicle battery ingredient. Previously unknown companies have soared in value after striking large deposits of lithium-bearing spodumene, mainly in Western Australia, while others have sputtered on uncertainty. The sector’s shares offer some of the most volatile returns on the benchmark S&P/ASX 200 Index, according to data compiled by Bloomberg.

Liontown Resources has surged 105% to lead the Australian gauge in 2023 after spurning three takeover bids in five months from the world’s top lithium producer Albemarle. Meanwhile, peer Lake Resources has plummeted more than 70% after flagging a six-year delay and cost blowouts at a project in Argentina. The nation’s benchmark is up 1.2%.

Lithium stocks are “the gambling end of town, they tend to attract hot money and retail” betting, said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. He owns shares in Pilbara Minerals Ltd., which transformed from a A$500-million ($321-million) junior miner three years ago to a A$15-billion giant producing 8% of the world’s lithium. The stock has risen 32% in 2023. He also owns Allkem, up 25%.

GAINS TOPPING 1 100%
Demand for lithium has surged in recent years as carmakers, driven by climate policies, attempt to reinvent themselves as EV manufacturers. That’s put a spotlight on stocks such as lithium miners that are part of the supply chain.

Azure Minerals is among Australia’s emerging lithium stars, notching a surge of more than 1 100% this year. Earlier this month, it rejected a takeover bid from Chilean lithium producer SQM and has shot past its offer price of A$2.31. Patriot Battery Metals, which is developing a large lithium deposit in Canada, has jumped 81%.

In South Korea, there’s a similar frenzy for shares perceived as being tied to the metal. Hydro Lithium Inc. skyrocketed more than 1 500% in 2022 after the little-known civil engineering firm changed its name from Korea SE Corp. and created plans for EV battery-related businesses. Chemicals firm Kum Yang Co. has jumped more than 400% this year on its link with a Mongolian lithium mine.

Australia’s lithium shares have tended to soar when companies announce a discovery, often with little regard to its size, accessibility or grade, said Carrick Ryan, portfolio manager at Westbeck Capital Management, an early investor in Pilbara Minerals and Patriot Battery Metals.

“In a market like we’re in today where it’s red hot for lithium explorers, if the stock moves up a lot on a skinny discovery, you should be careful,” he said.

But investors are becoming more selective. When it comes to producers, traders want to see evidence that a deposit can be turned into a productive mine, Ryan said.

“While confidence in the future of lithium remains robust, a discerning filtering strategy is coming into play,” said Hebe Chen, an analyst at IG Markets. “The challenges posed by lithium prices are prompting investors to seek shelter in well-established names with strong cash flows and outlooks.”

Spot prices of lithium carbonate — a refined form of the metal — have been on a wild ride. They climbed to a record in November as a global push toward an electrified transport fleet fired up consumption, before plunging this year as supply pressures eased.

Some are looking elsewhere to play the EV boom. Out of all metals key to the clean energy transition, copper offers the most potential amid a looming shortage, Westbeck Capital Management’s Ryan said.

“If you could get an excellent copper discovery in a good jurisdiction, that would be the ideal situation,” he added.
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