Here are the 5 best ASX lithium shares

Nick Sundich Nick Sundich, April 20, 2023

Which companies are the best ASX lithium shares?

Demand for lithium will likely skyrocket for the rest of this decade. There are varying estimates of just how much it will grow – one recent estimate made by developer alliance Li-Bridge tipped a 5-fold increase. But not all lithium shares will benefit equally. The harsh reality is that the bulk of ASX lithium shares are just explorers, just aspiring to find and build the next big mine. Only a few will realise this dream and likely not for some years to come.

Nonetheless, there are a handful of companies that have projects that are either in production or about to enter production. If all goes well, they will capture their fair share of the upside. Here is Stocks Down Under’s 5 best lithium shares.


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The 5 best ASX lithium shares


1. Rio Tinto (ASX:RIO)

This company may not stand out among ASX lithium shares because it is an all-rounder – with exposure to several commodities including iron ore and aluminium. But it comes with the benefit of being less volatile to the lithium price, having exposure to so many other commodities.

Rio Tinto’s lithium assets include its stalled Jadar mine in Serbia and the Rincon project in Argentina which will be producing next year. The latter was bought for US$825m back in March 2022.

With a $15bn war-chest, it could up its exposure to lithium through M&A activity in the medium term.


2. Mineral Resources (ASX:MIN)

Mineral Resources is peculiar as far as ASX lithium shares go because it does not only have its own mines (in gold, iron ore and lithium), but provides mining services. So, as with Rio Tinto, it could be less volatile than other lithium shares that are only exposed to lithium and are vulnerable to rapid swings in the lithium price.

Mineral Resources has three lithium operations in Western Australia. First, the Mt Marion Operation that it operates in a joint venture with Jiangxi Gangfeng Lithium. The other two are the Wodinga Lithium Operation, that lies in the Pilbara region, and the Kemerton Lithium Hydroxide plant that is in the South West region. The latter two are operated in a 40-60 JV with Albermarle.

In 1HY23 alone, Mineral Resources made $2.35bn in revenue (up 74%), a $390m NPAT (up 1,890%) and an 18.4% Return on Invested Capital (ROIC).


3. Pilbara Minerals (ASX:PLS)

Pilbara Minerals only has one project, the Pilgangoora project. But it is one of the world’s biggest lithium mines. It lies 120km from Port Hedland and is one of the largest deposits of lithium spodumene and tantalum in the world.

Spodumene is the mineral that yields lithium, while tantalum is valuable for its use in electronics and alloy metals given its corrosion-resistant properties. Pilgangoora is a hard rock project, which is costlier to mine than underground brine deposits. But beggars for lithium cannot be choosers. Only hard rock lithium can convert directly to lithium hydroxide – the chemical that might be needed over lithium carbonate to improve energy density in batteries in the years ahead.

The company has been in production since 2019 and its shares are up over 2,500% in 3 years. It shipped 361,035dmt (dry metric tonnes) of spodumene concentrate in FY22, leading to $1.2bn in sales revenue and a ~$560m NPAT. FY23 has been even better with 309,255dmt shipped in the first half alone, leading to $2.18bn in revenue and a $1.24bn profit.


4. Core Lithium (ASX:CXO)

Core Lithium is not a producer. But unlike most other ASX lithium shares that aren’t producers already, it should be minted as one in the first half of 2024.

Core Lithium’s flagship project is the Finniss Lithium Project covers 500 square kilometres within the NT’s Bynoe Pegamite Field lying 88km trucking distance from Darwin Port. Lithium was first discovered there in 2016 and the project has grown ever since. The April 2022 Definitive Feasibility Study (DFS) reported a JORC compliant Mineral Resource of 15 million tonnes (Mt) at 1.3% lithium oxide. The study reported a Pre-Tax IRR of 80%, an NPV of $114m and free cash flows of $158m from $501m revenue. A 180,000tpa operation was anticipated.


5. Leo Lithium (ASX:LLL)

Leo Lithium is another company belonging to the group of ASX lithium shares entering production in the next 12 months.

Its Goulamina project in Mali going to be the first hard rock lithium project in West Africa, will be operated in a 50-50 joint venture with the world’s largest lithium chemical producer and is substantially funded to production. This project was formerly owned by Firefinch (ASX:FFX), but was spun off in 2022. Firefinch had grown the Mineral Resource to 108Mt at 1.45% lithium and an Ore Reserve at 52Mt at 1.51% lithium. The 2020 DFS found an NPV of US$2.94bn, a post-tax IRR of 83% and a 23-year mine life.

Investors have been cold on this company (even more so than other ASX lithium shares) in recent months given the volatility in the lithium price, the inevitability that future funding will be needed and the possibility of supply chain issues.

Leo Lithium is fine for the first Stage of production, but the second will need further capital. In our view, LLL will take supply chains into account in awarding tenders for the projects and could fund Stage 2 with free cash flows from Stage 1 alone.


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