However, there is another megatrend that we like even more than AI—the rise of lithium mining in India.
Lithium is the lightest metal. It is a rare element that is essential for the production of high-density and high-efficiency batteries. These batteries power the modern world.
From smartphones and laptops to electronic vehicles and renewable energy storage systems, everything is powered by lithium.
The global demand for lithium is expected to grow exponentially in the coming years as more countries adopt policies to reduce carbon emissions and promote clean energy.
However, lithium supply is limited and concentrated in a few countries, mainly in South America and Australia. China, the world’s largest consumer and producer of lithium, has secured a dominant position in the lithium value chain, from mining to refining to manufacturing.
This presents a challenge for India, which is one of the fastest growing markets for EVs and electronics. But India imports all its lithium needs, which makes it vulnerable to price fluctuations and geopolitical risks.
In addition, India’s dependence on imported lithium hinders its ambition to become a global leader in EVs and clean energy.
That is why we are excited about the recent developments in lithium mining in India. India has made significant strides in exploring and acquiring lithium resources, both domestically and internationally, in recent years.
On Wednesday, it was reported that India signed an agreement to acquire five lithium brine blocks for exploration and development in Argentina.
All these efforts combined could transform India’s lithium landscape and create new opportunities for investors and businesses.
Understanding the global lithium economy
In 2023, global lithium production will reach approximately 0.4 million (m) tons, quadrupling since 2010. The main demand driver is the growing EV market.
Chile, Argentina and Bolivia – together called the “Lithium Triangle” – hold more than 75% of the world’s supply under their salt.
To date, Chile is the leader in lithium production with 170,000 tons, followed by China, which has mined and refined more than 70,000 tons of lithium. Argentina and Australia added about 60,000 tons and 50,000 tons of lithium to the global supply chain.
India’s lithium market and opportunities
The main drivers of the lithium market in India are the increasing adoption of EVs and the expansion of the electronics and renewable energies.
India has set a target of achieving 30% electric mobility by 2030, which would require approximately 40 GWh of battery capacity per year.
India also plans to install 450 GW of renewable energy by 2030, which would require about 300 GWh of battery storage capacity.
These goals create a huge demand for lithium batteries, which are the most efficient and cost-effective option for EVs and energy storage.
Currently, India imports almost all of its lithium. But domestic production can significantly reduce this dependence, saving foreign currencies and strengthening energy security.
India’s global lithium sourcing and mining
Apart from domestic exploration, India has also taken steps to acquire lithium assets abroad, especially in the Lithium Triangle.
In 2021, the ministry of mines created a joint venture company called Khanij Bidesh India Ltd, which is mandated to identify and acquire mineral assets abroad that are critical and strategic in nature, such as lithium, cobalt, and nickel.
Engagements are underway with selected source countries such as Australia, Argentina, Bolivia, and Chile, which are endowed with the cited critical and strategic minerals specifically lithium and cobalt.
India and Australia have made an initial investment of $6 million for the joint due diligence process in the 50:50 ratio of participating interest.
In addition to that, the mining ministry finalized an agreement to acquire five lithium blocks for exploration and development in Argentina.
India’s lithium reserves and exploration
India’s first lithium reserve of 1,600 tonnes was discovered in 2021 in Mandya, Karnataka by the department of atomic energy. Although this amount is negligible compared to global reserves, it marked the beginning of India’s lithium exploration.
The Geological Survey of India last year found 5.9 million tonnes of lithium reserves in Jammu and Kashmir, and identified potential lithium zones in Arunachal Pradesh, Andhra Pradesh, Chhattisgarh, Jharkhand, Karnataka and Rajasthan.
These discoveries indicate that India has more lithium resources than previously thought, and that there is scope for further exploration and extraction.
Best lithium stocks to track
Let’s take a look at the companies involved, directly or indirectly, in the lithium space.
Khanij Bidesh India: A joint venture of three government giants – National Aluminum Co., Hindustan Copper Ltd, and Mineral Exploration and Consultancy Ltd. (MECL), Kabil is tasked with securing overseas lithium resources.
Kabil acts as India’s strategic arm, negotiating partnerships and acquisitions in lithium-rich countries such as Argentina, Bolivia, and Australia. This ensures a constant flow of lithium for domestic battery production and independence from volatile international markets.
Hindustan Copper: The copper giant is diversifying its treasure chest. Recognizing the growing demand for lithium, HCL has actively acquired exploration licenses in promising Indian regions.
Their existing mining infrastructure and operational expertise provide a significant advantage in extracting this valuable metal, potentially establishing them as a key player in the domestic lithium supply chain.
National Aluminum Co. (Nalco): The aluminum power becomes electric. Nalco’s entry into lithium mining and battery manufacturing leverages its extensive industrial infrastructure and metallurgical expertise. This vertical integration positions it as a major player in the entire lithium value chain, from resource extraction to finished battery production.
NMDC: India’s largest iron ore miner began looking for lithium in the Mt. Bevan region of Australia with partner Hancock Prospecting. The state-owned mining company hopes to expand its lithium production to increase the production of electric vehicles. NMDC is also in talks with Australia’s Hancock Prospecting Pty Ltd for lithium exploration and mining.
Gujarat Mineral Development Corp.: GMDC is one of India’s leading mining and mineral processing companies. It is expected to play a significant role in India’s lithium economy as the country’s first lithium refinery is set up in Gujarat.
Hindustan Zinc: India’s largest zinc producer with a strong presence in Rajasthan has expressed keen interest in the lithium auctions. With 50 years of experience in mineral extraction, robust infrastructure and financial muscle, HZL could become one of the most prominent players in the lithium economy.
Vedanta (via Vedanta Resources): This diversified natural resources conglomerate has expressed interest in lithium exploration and is actively seeking mining licenses. Their financial resources and experience in mining various minerals position them as a major contender.
Adani Enterprises: Beyond renewable energy, Adani is making strategic moves in the lithium space through partnerships and acquisitions. Their ambition and infrastructure capabilities make them a force to be reckoned with in the lithium supply chain.
Amara Raja Batteries: Amara Raja is India’s largest kitchenware manufacturer and supplier. It is the largest supplier of industrial storage batteries in India. In fact, it was the first to set up the lithium battery development hub.
Shree Cement: The company intended to participate in auctions for lithium mining rights, aligning with the government’s strategy to ensure vital mineral production.
Shree Cement may bid for lithium mining blocks in Jammu and Kashmir. Moreover, it also plans to bid for blocks in Chhattisgarh, making its foray into the mining sector.
These are just a few obvious names in the lithium space. As this becomes mainstream, there will be more companies that will follow suit and explore lithium mining options to diversify their revenue profile.
If that happens, you could build a watchlist of all the stocks and pick the best ones that match the criteria below:
- Stocks with zero or no promoter promise
- High promoter (preferably above 45%)
- Low debt to equity (preferably below 0.8 times)
- High ROE and ROCE (preferably above 15%)
- Low cash conversion cycle (preferably below 100 days) and low days receivable (preferably below 90).
- And of course, also look for consistency in operating profit margins.
Mega opportunity
Lithium mining is the megatrend we like better than AI in 2024 because it has the potential to transform India’s energy and economic landscape, and create new opportunities for investors and businesses.
However, India currently lacks the capacity and infrastructure to produce lithium products at scale and is dependent on imports from China and other countries.
The government has simplified the mining license process for lithium, reducing bureaucratic hurdles and speeding up project approvals. This creates a more investor-friendly environment and encourages rapid development.
Tax breaks and royalty exemptions are offered to lithium mining companies, making domestic extraction financially attractive and boosting long-term sustainability.
The government is also actively pushing for environmentally responsible mining practices, with strict regulations and monitoring to ensure minimal environmental impact.
Here lies the opportunity for investors and businesses who can invest in lithium extraction, refining and manufacturing, and create a competitive and sustainable lithium industry in India.
By doing so, they can not only respond to the domestic and global demand for lithium products, but also take advantage of India’s advantages, such as its large and skilled workforce, its strong research and development capabilities, its favorable policies and incentives, and its strategic location. and access to markets.
If you are interested in undiscovered megatrends and the ideas that could do well in 2024, check out this article: 3 hot megatrends of 2024 to invest in.
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com