Did these lithium stocks just hit the motherlode?

Lithium prices have exploded nearly 700% in a year, sending related stocks through the roof. But which companies can continue growing?

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Lithium stocks are on fire at the moment. Demand for the battery metal is skyrocketing as electric vehicle adoption accelerates. And it seems supply is struggling to keep up.

According to a report by the US Geological Survey, lithium production jumped 21% in 2021, versus global demand’s rise of 33%. With supplies quickly running out, lithium prices have gone through the roof.

In January last year, the price of lithium carbonate (the primary ingredient in lithium-ion batteries) stood at $7,000 per tonne. Today, it’s closer to $55,000, with analyst forecasts indicating even higher prices on the horizon. With that in mind, let’s explore which UK mining stocks are perfectly positioned to capitalise on this seemingly massive opportunity.

An industry leader

One of the biggest mining companies in the world is Rio Tinto (LSE:RIO). And it’s the first lithium stock that came onto my radar this week, which may seem odd for investors familiar with this business. Why? Because Rio Tinto doesn’t produce any lithium. At least not yet.

In March, management signed and completed an $825m acquisition of the lithium Rincon project in Argentina. That’s not cheap by any means. But Rincon is a long-life, scalable extraction site containing battery-grade lithium carbonate.

That’s obviously an exciting prospect. And providing lithium prices continue in their upward trajectory, the firm may recoup its investment relatively quickly. Having said that, it’s important to note that Rincon is currently undeveloped. That means quite a bit of work needs to be done before any production can begin. And with commodities being cyclical, there’s the risk of prices falling before Rio Tinto can profit from the opportunity.

Personally, I feel this is a risk worth taking. Even if lithium prices stumble, the group has plenty of other metals in its portfolio, enjoying similar tailwinds from the renewable energy transition.

An opportunity among penny lithium stocks?

Lithium stocks are notorious for their extensive risk profiles. After all, running a mining enterprise is not exactly easy, or cheap, requiring a lot of capital to even get started. And this risk only gets amplified when venturing into the realm of penny stocks. But for early investors in the companies that manage to beat the odds, immense returns are to be had.

That’s what’s brought Trident Royalties (LSE:TRR) onto my radar. It’s similar to another mining group in my portfolio called Anglo Pacific because the company doesn’t actually do any mining. Instead, it finances projects worldwide in exchange for a portion of the extracted materials as a royalty fee.

Much like Rio Tinto, Trident doesn’t have any producing lithium steams at the moment. However, its investment in the late-stage Thacker Pass lithium project could soon change all that. The mine has received all necessary environmental permits, and site construction is expected to commence sometime after the third quarter of 2022.

That’s still a fair amount of time away. And with other lithium stocks looking to take advantage of the increased prices, the value of the commodity might begin to fall as supply catches up.

Fortunately, this business is not a one-trick pony, with iron, copper, and gold royalty streams already generating profits despite the group’s small size. That’s why I’m considering it as potential speculative addition to my portfolio today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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