A change is coming in the lithium industry due to the development of a new technology and a couple of ASX 200 lithium shares could benefit more than most.
That technology is direct lithium extraction (DLE) technology, which Goldman Sachs believes could be "game changing" for the industry.
In fact, the broker has suggested that the technology could do for lithium what shale did for oil. Goldman commented:
Much like shale did for oil, DLE has the potential to significantly increase the supply of lithium from brine projects, nearly doubling lithium production/yield (taking recoveries from 40-60% to 70-90%+) and improving project returns, though with the added bonus of offering sustainability benefits and ESG credentials for its implementors (land usage from lack of ponds declines >20x, water usage and metrics improve on potential brine reinjection), while also widening (rather than steepening) the lithium cost curve.
How do investors benefit with ASX 200 lithium shares?
As you might have realised by now, this technology is used on brine projects and not in lithium mines.
It is for this reason that Goldman Sachs prefers "briners over miners" right now and is recommending investors buy ASX 200 shares Allkem Ltd (ASX: AKE) and Rio Tinto Ltd (ASX: RIO) for exposure to lithium. It explained:
We prefer briners over miners in the lithium sector over the medium term, with DLE offering significant potential to increase lithium output on improved recoveries and lift project economics. We reiterate our Buy ratings on Allkem/RIO (on CL)/Qinghai.
In respect to Allkem, the broker believes that DLE could potentially add US$500 million or $1.20 per share to its valuation if successfully implemented. It explains:
Technologies are being reviewed that may see an increase in plant recovery from ~75% to ~95% at both Olaroz Stages 1 and 2 (total recovery ~60% including ponds), without the need for additional ponds or pumping of more brine. […] While we don't include the enhanced brine recovery in our base case (pending results of testing), our analysis suggests that increasing recoveries from 75% to 95% from FY26E at Olaroz would drive a >US$500mn increase in our Olaroz NAV or ~A$1.20/sh (on our long run pricing). Possible future expansions at Sal de Vida may also benefit from DLE technologies.
As for Rio Tinto, Goldman sees a lot of potential in the technology on its Rincon project in Argentina. It notes that the "pilot plant is currently operating at the Rincon site and further work will focus on continuing to optimise their proprietary DLE process and recoveries."
Time will tell what happens, but these are interesting times for ASX 200 lithium shares and the industry as whole.
Incidentally, Goldman currently has a buy rating and $12.90 price target on Allkem shares and a conviction buy rating and $136.20 price target on Rio Tinto shares.
