Why Standard Lithium Stock Popped Today
Key Points
China is canceling old lithium mining licenses, mostly for non-operational mines.
Chinese lithium prices spiked on the news, pushing lithium stocks higher today.
Shares of Standard Lithium (NYSEMKT: SLI), a Canadian lithium company that produces its white metal from filtering brine primarily in Arkansas, jumped more than 6% in early trading Tuesday. Prices have settled at about a 5% gain as of 11:05 a.m. ET.
It all started in China.
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Chinese moves the market
The Bureau of Natural Resources in Yichun, Jiangxi Province, plans to cancel 27 lithium mining permits in January, as Mining.com reports today. Lithium prices in China reacted sharply, up about 7.6%, spurring big price spikes among global lithium miners.
And yet, Mining.com notes that "all of the licences had already expired, some more than a decade ago, and most were registered for ceramic clay or limestone mining." So how big of a deal is this, really?
Lithium analysts don't think it's particularly significant, with one analyst quoted saying, "the licence cancellations would have little impact on supply, as none of the revoked permits covered operating mines." Still, so long as the licenses remained active, mining might potentially have been resumed at any of the sites, legally, adding to global lithium supply. This can't happen now, unless the licenses are officially renewed.
That's why lithium investors are excited today: Future lithium supplies just got rolled back, increasing the chance of prices rising in the future.
Is Standard Lithium stock a buy?
But here's the thing investors need to remember: All the above is of only theoretical importance to Standard Lithium... until Standard actually starts producing lithium! It doesn't yet, having no revenue (and no profit) yet, and none expected before 2028 at the earliest. Meanwhile, Standard Lithium is losing about $187 million a year.
Until that changes, it's hard for me to call Standard Lithium stock a "buy."
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.