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By Will Ellis

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Last Updated on April 12, 2024

Edited by Adam Turner

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Fact checked and reviewed

Part of the appeal of commodities is that they are so intuitive to people who otherwise know nothing about the market. If you ask someone, “What stocks have the highest prices right now?” they are going to have little to no clue what to say.

Maybe they will say that something like Apple or Tesla has good stock prices, but obviously, those prices are nothing compared to Berkshire Hathaway, which they have almost certainly never heard of. But with commodities, the base knowledge that a person has can actually play out properly in the market.

What that means is that you can ask someone “What is the most popular commodity in the world?” and they have a pretty good chance of getting the right answer (it is oil, by the way).

It is for this reason that many people find themselves looking into buying Lithium.

Table of Contents:

• What is so Special About Lithium
• How Do You Buy Lithium Shares
• Investing Strategies with Lithium

What is so Special About Lithium? ➡️

The oil is running out. Everyone knows it, and while we cannot know for sure how much is left, Worldometers estimates that there is less than 60 years of oil left on Earth. That means the human race has 60 years to satisfy the needs that oil satisfies with alternative energy sources.

One of the industry leaders in this regard is Tesla. You have probably heard of it and its very rich, very talkative CEO, Elon Musk. Because the company has not only pushed for innovation, but actually succeeded in making practical electric cars, an electric solution to the oil problem is at hand.

This is aided by the fact that electric motors are far, far more efficient than combustion engines. In a combustion engine, between 20% and 30% of the energy created by burning the fuel is captured by the engine. That is not very efficient at all. In an electric vehicle, it is north of 80%.

And what do these electric vehicles need to make their batteries? Lithium. This means that the demand for lithium has grown as the electric car industry has grown. But it is actually growing even more than that. You see, electric solutions are being found for problems all over the world.

How the War in Ukraine Effects Lithium 🤔️

In February of 2022, Russia invaded Ukraine. Europe and the United States quickly responded by sanctioning trade with Russia – including Russian oil. Russia supplies about 1/4^th of all the oil used in Europe, so these sanctions his supply lines particularly hard. 

But think about this: There will perhaps be no more oil in less than 60 years. Between the fall of the Berlin Wall to Russia’s invasion of Ukraine was 30 years. It took the world 30 years to get to where it is in regard to Russian trade. How long will Russia maintain its current foreign policy? And when it is done practising this foreign policy, how long will it take for the world to trust it again?

Europe might have just entered a new age, where the oil shortage hit far sooner. This has resulted in not just Tesla, but tons of electric energy startups forming to tackle energy problems. For instance, one of the greatest challenges when looking at different kinds of electric vehicles is building electric shipping liners and cargo jets.

Simply put, it is hard to make an electric engine that can supply as much energy as these vehicles need (partly due to the weight of the batteries they must carry). Even as inefficient as the combustion engine is, it has been optimised for these needs in a way that electric engines just haven’t. At least, not yet. With the oil shortage, those innovations might come soon.

Essentially, the rise in the value of lithium can be tracked very closely to the decrease in the value of oil. Oil has become more valuable recently as a result of the shortage, but that is because demand has stayed the same while supply has decreased. Soon, it will be easier to implement electric solutions.

How Do You Buy Lithium Shares? 🛒️

When I say, “lithium shares”, I mean two things: Lithium commodities, and shares in lithium-producing companies. Concerning the first one, what you are buying is claims to the lithium that certain extraction-based industries pull from the earth. You can also buy it after it is processed. Basically, a lithium commodity is anything other than the product a company actually makes with the lithium.

There are some other forms of lithium commodities, but I will get to those later.

Concerning lithium-producing companies, I should make one thing clear: The companies in question are not companies that produce products with lithium. That would be companies like Tesla, which use Lithium in batteries. We are talking about companies dealing in the extraction and refining of lithium.

So, let’s talk about how these work one at a time.

Lithium Commodities

Buying lithium as a commodity is useful because it means that you own something separate from any given company. Even if the company that extracted the lithium goes under, you are still entitled to a share of its lithium stores, even if it get bought by another company.

But it is rare (though not unheard of) that a trading platform allows you to buy commodities directly. So, what is someone to do if the trading platform they have been on for years does not offer commodities?

Well, while most trading platforms don’t do that, they will offer security called “futures”. This is a form of investment in a commodity like lithium that has been around for hundreds of years. The idea here is that while a company has plans to extract lithium, it might not have done it quite yet.

The practice of trading shares goes back to farmers, who would need funding for their planned crops. They would sell “futures”, which meant that the buyer would own a portion of the crops grown in the future. As trading got more advanced, however, the futures themselves became valuable.

This is particularly true with lithium since it deals with so many high-profile innovations. So, you buy the future, and then once the lithium is extracted, it is yours. You are basically getting a discount based on uncertainty. Maybe the lithium will be less valuable when that time comes. Maybe it will not even be extracted at all. But what you are betting is that it will be more valuable when the chosen time comes.

If that happens, then the future will get more and more valuable, meaning you can sell it at a profit.

Lithium as Shares

Since commodities are hard to come by, the much easier way to get into the growth of the lithium trade is by buying into the companies themselves. This means focusing on the companies centred around the extraction and processing of lithium. Basically, you want to treat them like they are oil companies.

While I will not go too deep or advocate for anyone too strongly, let’s talk about some of the companies that represent the biggest and most secure shares of the lithium industry.

1. Mineral Resources – The most obvious mineral extraction company in Australia to talk about. Its 2021 earnings were well above expectations. Trading in its shares is cushioned by the fact that it deals not only in lithium but also in iron.
2. Orocobre – South America has tons of land held in reserve for preservation, but the land that has been exploited stands to produce wealth comparable to even Africa. Orocobre is an extract from Argentina, and it deals in lithium as well as potash and boron, tying it heavily to industries that deal in heavy metals, such as automotive and aerospace.
3. Piedmont Lithium – A lithium-focused company out of the US that is also listed on the Australian Securities Exchange. Its focus is justified by the niche it fulfils, using a lithium hydroxide solution to make lithium cheaper to refine and sell for the purposes of building electric vehicles.
4. Vulcan Energy Resources – Almost everyone likes Vulcan Energy Reserves. Its investors like it because it makes products that no one has ever seen. And its competitors like it because it takes such risks that it is hard not to be impressed by it. Both of these reactions come from the fact that they Vulcan Energy Resources is looking to be a zero-carbon lithium producer.
5. Ioneer – Another US-based company, this time supplanting focus with diversity and volume. That means rather than making its lithium cheap or innovative, it has more than just lithium, and it has a lot of it. Reportedly, 60 million tonnes of it. This gives it a sizable share of all lithium coming out of the United States, though by no means a monopoly. 

These are some of the lithium companies doing the best right now. Not every lithium company is growing at the rate that the lithium industry is growing, so it is wise to invest in the winners and be able to tell what they do differently from the losers. 

But if you are going to invest in lithium, then you need to have a plan of how to do it.

Investing Strategies with Lithium 💰️

Calling anything an “investing strategy” immediately makes people tense up like it is the first day of school. It sounds intimidating to some as if it requires a deep dive into a stale textbook. But that is not the case. Investing strategies can get complicated, but they start off incredibly simple.

The first question you have to ask is this: Do you want to make your money fast or slow? Basically, all investment strategies start with this first question. And no, you cannot answer by saying “both”.

Income Investment – The Fast Way ↗️

You might have figured this out from your time on the earth already, but money solves a lot of problems. This observation is what motivates a lot of people to get into trading, as it is a method of supplementing or even sometimes supplanting one’s income. This is called “income investment”, which is more focused on generating ongoing cash flow rather than generating capital gains when selling holdings over time.

The basic idea behind income investment is that you are only holding any given position long enough to yield a return. Most times that return is small. Sometimes, it is bigger than small. Rarely is that return “big” by any definition of the word. But getting a big return is not the point.

The point of income investing is finding a method of investing that works. This can mean looking for lithium companies that produce in a certain way, in a certain region, with certain tools, or just by looking at whose stock prices are low enough to buy. In any case, you want to minimize risk at all times.

Of course, income investing is given to risk-taking, but I am obviously not recommending that.

Growth Investment – The Slow Way 💵️

While making money frequently is exciting, making money slowly is more practical. In fact, while most people elect to enter the stock market for income investment, most people find themselves invested in the stock market with a growth strategy by necessity. 

This is because the idea behind the growth is that you put your money into a company that is going to grow in the next ten to fifteen years. In order to make that kind of bet, you have to invest in something that you know is going to increase in value. Lithium is that thing for many people right now.

The main reason is that it is useful for electric energy solutions but already has a place in consumer electronics. This means that it was already a growth industry. Now, it will grow even more.

Conclusion 🔎️

This is just about everything you need to know in order to buy lithium shares in Australia. You know what you are buying, who to buy from, where to do it, and how to do it. The question for most people is when to do it; particularly, people wonder how to buy at the most opportune time.

The most opportune time depends on your strategy. But for most people, the best time to start is yesterday. And the second-best time to start is today.

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