Why the Vulcan (ASX:VUL) share price is running hot in August

Shares in the emerging lithium producer keep going up. Here’s why…

| More on:

Image source: Getty Images

In the last four days, the Vulcan Energy Resources Ltd (ASX: VUL) share price has already rallied almost 18% to a record high of $11.56.

Taking a step back, shares in the emerging lithium producer have surged 317% year-to-date. They have also gained an extraordinary 2,117% in the last 12 months.

At the time of writing, Vulcan shares are up 0.26% on the previous clsoing price to $11.56.

The company isn’t expected to begin producing lithium until mid-2024.

So why does the Vulcan share price continue to surge?

Why the Vulcan share price has an edge

Vulcan’s Zero Carbon Lithium project draws on naturally occurring, renewable geothermal energy to power its lithium extraction processes. This means that its operations use no fossil fuels, require very little water and a tiny land footprint.

Vulcan flags that there is a high environmental footprint for the production of lithium. It says there are approximately 1 billion CO2 emissions from producing and refining lithium from hard-rock mines.

Many household ASX 200 lithium miners including Galaxy Resources Limited (ASX: GXY)Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE) use both hard-rock and water intensive brine extraction methods.

Surprisingly, when you invest in Vulcan shares, you’re gaining exposure to both an energy and lithium business.

Alongside the company’s core lithium business, Vulcan also aims to develop an energy business which would sell its excess geothermal energy to the grid and sell energy, in the form of heat, to public and private customers.

Vulcan to offset CO2 penalties for automakers

There are currently penalties in place for vehicles’ emissions in the European Union. However, there are none which target the supply chain, according to Vulcan.

In the company’s Zero Carbon Lithium corporate presentation, the company said “this is likely to change shortly with new EU legislation and lead to heavy penalties if carmakers are not sourcing greener raw materials”.

The company believes its Zero Carbon Lithium is a solution which “offers a negative carbon footprint that will help automakers to reach their sustainability targets by offsetting CO2 generated by the rest of their supply chain”.

There was positive news for the Vulcan share price earlier this week. This came when the company revealed a 5-year strategic partnership with Renault Group.

The bigger picture

The surging Vulcan share price isn’t a one-man show in the lithium sector.

The Pilbara Minerals and Galaxy share price have lifted well over 100% year to date. Orocobre is trailing behind, up 87% this year.

Beyond ASX-listed lithium players, the Global X Lithium & Battery Tech Exchange Traded Fund (ETF) rallied 4.47% overnight to a new all-time high.

The Lithium ETF invests in the full lithium cycle, from mining and refining through to battery production.

The ETF is up 39% year-to-date, reflecting broader tailwinds for the industry.

Should you invest $1,000 in Vulcan Energy right now?

Before you consider Vulcan Energy, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Vulcan Energy wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Kerry Sun owns shares of Vulcan Energy Resources Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Gainers