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 Sigma Lithium Corporation (NASDAQ:SGML) 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).
A mining truck hoding a payload of mineral ore, a visual representation of the companies resources.
Market Capitalization as of September 6: $1.03 billion
Number of Hedge Fund Holders: 20
Sigma Lithium Corporation (NASDAQ:SGML) is carving out a significant role in the global lithium market, driven by its aggressive exploration and development efforts in Brazil. The company is deeply involved in the lithium-ion battery supply chain as it caters to the rising demand for electric vehicles worldwide. It owns several properties in Minas Gerais, Brazil, including Grota do Cirilo, Genipapo, Santa Clara, and São José, which together span approximately 185 square kilometers.
In February, the company received a letter of intention from the Development Bank of Brazil (BNDES) for additional funding aimed at expanding its Grota do Cirilo project. The funding is intended to boost the plant's production capacity from 270,000 tonnes per year to 510,000 tonnes.
Additionally, it obtained a full environmental license for a second plant, which will allow the processing of up to 3.7 million tonnes per year. The regulatory approval is crucial for scaling up production to meet growing market demands. It takes the 6th spot on our list of biggest lithium stocks to buy right now.
Further strengthening its position, Sigma Lithium (NASDAQ:SGML) secured a development loan of BRL 487 million (approximately USD 87.5 million) from BNDES on August 29. The loan will finance the construction of the company’s second Greentech Carbon Neutral Plant in Brazil.
The plant is already under construction and is expected to be completed by summer 2025. The new facility is projected to double the production capacity of its Quintuple Zero Green Lithium, which brings the total capacity to around 520,000 tonnes per year.
The company’s performance in the second quarter of the year highlights its strong market presence. The company reported a significant increase in sales volume, with prices 10% higher than those of its competitors. Revenue surged to C$62.86 million, which marked a nearly 69% increase from the previous quarter. In addition, it managed to reduce its cash costs by 22%, which enhanced its profit margins to 54% and exceeded its financial targets.
Sigma Lithium (NASDAQ:SGML) was held by 20 hedge funds in Q2 and the stakes amounted to $89.1 million. Appian Way Asset Management is the top shareholder of the company and has a position worth $31.3 million as of Q2.
Overall SGML ranks 6th on our list of the best lithium stocks to buy. While we acknowledge the potential of SGML 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 SGML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
