Lithium has been touted as the next oil, but many investors will remember when uranium, graphite and rare earths were also the flavour of the month, begging the question, is pouring your money into lithium stocks a sustainable investment idea?
The likes of Galaxy Resources Ltd (ASX: GXY), Pilbara Minerals Ltd (ASX: PLS), Altura Mining Ltd (ASX: AJM) and Orocobre Limited (ASX: ORE) owe a lot of their share price success to the global excitement surrounding lithium thanks to the growing demand for lithium-ion battery products.
But is the boom cycle experienced by these companies just setting itself up for an inevitable bust?
Has the potential for lithium been overstated?
In mid-2017 there was a widespread sell-off among several ASX-listed lithium suppliers over reports Direct Ship Lithium Ore (DSO) economics were not as favourable as first thought.
But well-known advisors such as Canaccord Genuity thought the sell-off was overdone, naming players such as Galaxy, Orocobre and Altura as buys despite the slip in sentiment, with forecasts for no lithium oversupply problems before 2020.
Recently, brokers were not enthused by the outcome of Galaxy Resource's March quarter figures, which saw costs on the rise as production was lower than expected – causing Macquarie to place an under-perform rating on the stock saying similar figures are expected over the second quarter.
Citi still has a buy rating on Galaxy, albeit one with high-risk attached to it, with the broker revising its earnings down 19%, with concerns about why Galaxy has stopped disclosing realised pricing.
Shares in Galaxy were down 2.3% to $2.87 at April 24 close, dropping back 4.4% on April 23 after the announcement of results.
Galaxy has seen some share price volatility in the last 12 months – up from $2.12 at this time last year but dipping down considerably from its January 10 high of $4.46.
Similar ups and downs have been noted for emerging lithium and tantalum producer Pilbara Minerals, with share prices up from just 34c per share at this time last year to an April 24 close of 89c per share and a January high of $1.22.
Pilbara's share price has seen some short-lived surges in recent times after the announcement this month the company was on the verge of generating its first lithium revenue through DSO sales out of its Western Australian Pilgangoora Lithium-Tantalum Project under the mine gate sale agreement with Atlas Iron Limited (ASX: AGO).
Earlier this month Morgan Stanley rated lithium, potash and boron producer Orocobre Limited as underweight – cutting the price target on the stock from $4.55 to $4.35 after the company logged a production downgrade due to adverse weather conditions.
Small cap Altura has attracted some attention from investors after it was revealed the emerging lithium player was in talks with a Chinese company regarding proposed control transactions.
Altura has seen a steady share price increase in the last year, up from 13c per share this time last year to an April 24 close of 36c per share.
Foolish takeaway
There's no doubt there is a burgeoning demand for lithium right now, but there is also no doubt that technology will evolve quickly so no one knows what battery technology will look like in a decade.
Share price graphs look pretty volatile for some lithium players, but Galaxy does appear to have its fundamentals sorted, with up-and-coming Altura certainly one to keep an eye on, and, for the medium-term, plenty of global demand for lithium on the cards.
That said, I would only buy into lithium with money that is surplus to your essential ongoing living costs and take profit if it arises to cover your initial outlay, with some skin left in the game if the glorious lithium future ever eventuates.
