We recently compiled a list of the 11 Biggest Lithium Stocks to Buy Right Now. In this article, we are going to take a look at where Rio Tinto Group (NYSE:RIO) stands against the other lithium stocks.

Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.

Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry's cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.

According to industry experts like Rahul Sen Sharma, setbacks are common in large-scale industry transformations, and the lithium market is no exception. Jean-François Béland of Ressources Québec compared lithium's importance in the 21st century to that of coal and oil in previous eras, which shows the crucial role of lithium in electrifying transportation.

Long-Term Outlook for Lithium

According to the International Energy Agency (IEA), lithium demand is projected to rise tenfold in the Net Zero Emissions scenario and could reach 1,700 kilotonnes (kt). The market is further supported by developments in battery storage, with lithium demand for storage expected to grow more than ten times by 2050.

While alternative technologies like sodium-ion and vanadium flow batteries may slightly impact lithium demand, the metal's role in battery production remains dominant. Moreover, solid-state batteries could create a new demand for lithium metal by 2040.

On the supply side, lithium production has significantly increased, with current global output at 190 kt, mainly from Australia and Latin American countries like Chile and Argentina. By 2030, global supply is projected to rise to 450 kt in a base scenario, but further investments will be necessary to meet future demand, especially in meeting climate goals.

Dealing With Supply Shortages

According to Benchmark Mineral Intelligence, lithium-ion battery demand is projected to nearly quadruple by 2030, reaching 3.9 terawatt-hours. The market intelligence firm forecasts lithium surplus till 2029, but despite that, the firm says that the supply of environmentally and socially responsible lithium is currently insufficient to meet demand.

Sustainably sourced lithium is not enough to meet growing demand. By 2026, only 45% of lithium demand is expected to be met by recycled or sustainably mined lithium, dropping to 35% by 2030.

In light of that, Direct Lithium Extraction (DLE), is gaining traction as a more efficient and sustainable alternative. According to BloombergNEF, DLE is expected to contribute significantly to lithium supply by 2030 and could potentially rival the output of evaporative methods, if commercialized successfully.

Lithium can be sourced from hard rock deposits like spodumene and lepidolite, as well as from brine. The main challenge with the evaporative method is its slow processing time, taking up to 18 months to extract lithium. On the other hand, DLE can reduce this timeframe to two weeks while using land and water more efficiently. Despite a decline in lithium prices, investments in DLE continue, as it offers faster and more sustainable extraction from brine sources.

According to Benchmark, DLE is a promising technology that could help prevent future lithium supply shortages by efficiently extracting lithium from brines. It is expected to contribute 14% of the global lithium supply by 2035, especially from brines, geothermal, and oil fields. However, DLE faces challenges such as high costs, scalability issues, and inflation, which have increased project expenses.

DLE offers higher recovery rates (80-90%) compared to traditional evaporation methods (20-50%). Major oil companies like Exxon are investing in DLE due to its similarities with oil extraction. Despite its potential, DLE alone won’t solve the lithium market’s structural deficits in the short term.

Our Methodology

For this article, we scoured through ETFs and stock screeners to find the 25 biggest players in the lithium and lithium battery industry that are listed on the NYSE or NASDAQ. We then narrowed down our list to 11 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Aerial view of an open pit mine, with workers extracting minerals.

Rio Tinto Group (NYSE:RIO)

Market Capitalization as of September 6: $98 billion

Number of Hedge Fund Holders: 29

Rio Tinto Group (NYSE:RIO) is involved in the exploration, extraction, and processing of mineral resources on a global scale. Its Minerals segment focuses on the mining and processing of borates, titanium dioxide feedstock, and developing projects related to battery materials like lithium. It is one of the biggest lithium stocks to buy right now.

In the second quarter, 29 hedge funds held positions in Rio Tinto (NYSE:RIO) and their stakes amounted to $1.3 billion. As of June 30, Fisher Asset Management is the most dominant shareholder in the company and has a position worth $1.123 billion.

Rio Tinto (NYSE:RIO) is making significant strides in the global mining sector, particularly in the field of critical minerals and large-scale projects. As one of the largest iron ore producers worldwide, the company is also expanding its footprint in the lithium market, driven by the growing demand for EV batteries and energy storage solutions.

The company is taking a deliberate approach to becoming a major player in the lithium industry. Instead of pursuing large-scale acquisitions, it is focusing on developing its own lithium resources and improving extraction technologies. This method aligns with the vision of Rio Tinto’s CEO, Jakob Stausholm, who believes that the global demand for battery capacity will drive the need for more lithium, not only for EVs but also for stationary batteries.

In line with this vision, the company has invested heavily in the Rincon lithium project in Argentina, a key part of the lithium-rich "lithium triangle" that spans Argentina, Bolivia, and Chile. Acquired for $825 million in 2022, the project is set to include a battery-grade lithium carbonate plant with an initial capacity of 3,000 tonnes per year.

The company plans to invest an additional $350 million in the project, with production anticipated to begin by the end of 2024. The investment positions it to capitalize on the high demand for lithium in the future.

In addition to its lithium ventures, Rio Tinto (NYSE:RIO) is gearing up for a major development in West Africa. The Simandou project in Guinea, a $20 billion project, aims to extract iron ore from the world's largest untapped high-grade reserve.

After a nearly 27-year delay, the project is now moving forward with several partners, including the Guinean Government and several Chinese companies. The first shipment of ore is projected for 2025, with a goal of reaching full production of 60 million tonnes per year by 2028. This output would represent around 5% of the global seaborne iron ore market.

Furthermore, the company is involved in Serbia through its Jadar project, where the government has reinstated a spatial plan for a lithium mine and processing plant. Despite previous setbacks due to public protests, the project is expected to contribute significantly to the local economy, creating about 1,000 long-term jobs and generating substantial revenue from lithium production. If it is developed, the $2.4 billion Jadar lithium project in Western Serbia has the potential to meet 90% of Europe's current lithium demand and position the company as a top lithium producer.

Overall RIO ranks 4th on our list of the best lithium stocks to buy. While we acknowledge the potential of RIO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.