Whether you’re a staunch environmentalist or an electric vehicle enthusiast, the current state of the lithium industry is concerning. That’s because the lithium commodity’s dreadful impact on landscapes and its lackluster performance. For investors, lithium was not always the most exciting play, after all, it supported the steady smartphone and rechargeable battery industry. Yet, in the past decade, novel electric vehicles hit the consumer market, causing the lithium extraction sector to boom. Now, after some correction in the market, there are some obvious lithium stocks to avoid in comparison to others.
With the profit margins of lithium extraction thinning, the mining companies that do not keep operating expenditures in check could be the first to go in the event of a broader market meltdown. Thus, investors may want to avoid investing in these three lithium stocks with slim prospects for the coming year.
Leo Lithium (LLLAF)
Leo Lithium (OTCMKTS:LLLAF) once represented a pure-play in West African lithium mining, but as of May 8, its future seems uncertain. That’s because its only mining operations focused on developing the Goulamina Lithium Project in Mali.
However, it has since announced the sale of its remaining 40% stake in the project to its joint venture partner, Ganfeng Lithium (OTCMKTS:GNENF), the company seems to have left investors wanting. From the sale, the company will receive $342.7 million of which it will have to delegate $60 million to the Malian government to satisfy their original contract on the mine.
That last part seems to be what pushed Leo Lithium out of Mali, as the company had attempted to reach a “viable agreement” with Mali due to its new mining codes. Before the legal changes, the Malian government had a 20% stake with it now rising to 30% and an extra 5% going to a local Malian entity. With no clear mining replacement in sight, investors should consider LLLAF among lithium stocks to avoid.
Galan Lithium (GLNLF)
Sometimes the numbers can tell a cautionary tale without much exciting news at all. Such is the case with Galan Lithium (OTCMKTS: GLNLF), which is seeing operating costs rise along with dropping revenue. Both the company’s year-to-date and 12-month returns are significantly negative.
For example, if you had invested $1000 in gallon lithium at the beginning of 2024, you would only have $511 as a result of the company’s stock losing 49.9% of its value in just five months.
These financials come despite the company’s solid position in the Argentinian portion of the lithium triangle of South America. Galan Lithium touts these deposits are among the world’s purest, yet hasn’t turned a profit in the last four quarters. As such, investors should put Galan Lithium on their list of lithium stocks to avoid until the company has solid profits to show for it.
Ganfeng Lithium (GNENF)
A major player in the Chinese and global lithium markets, Ganfeng Lithium may have its work cut out for it. As previously mentioned, the company acquired the project stake of its partner, Leo Lithium for $342.7 million. This expenditure will likely cut into its short-term cash reserves but could prove tricky for the Chinese firm.
That’s because the Malian government’s new legal requirements and relative propensity for instability could result in a loss for Ganfeng. With armed gangs terrorizing swaths of territory through Mali, the situation for miners and developers in the region could deteriorate rapidly.
Moreover, the European Union has decided to no longer support the mission of training the Malian military. This will likely only worsen the conflict situation. Ultimately, investors might want to avoid Ganfeng until its lithium play in Mali matures.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.