Lithium or niobium? Both are heading up, but here’s the one that I think is the better punt.
Here at The Motley Fool, we encourage long-term investing in quality companies.
But that doesn’t necessarily mean playing it safe all the time. If you want to beat the market by picking individual stocks rather than index funds, you need to stick your neck out with some of your choices.
You can still buy a small amount of a speculative stock with the intention to hold it long term to see what happens.
Right now there’s much talk about two particular junior resources companies, Core Lithium Ltd (ASX: CXO) and WA1 Resources Ltd (ASX: WA1).
Let’s take a look to see which ASX mining stock you would want to buy at the moment:
This porridge is just right
Core Lithium has been described as The Goldilocks of ASX lithium shares.
That means that it’s not quite a top-line established producer like Pilbara Minerals Ltd (ASX: PLS) but it’s more mature than an explorer like Global Lithium Resources Ltd (ASX: GL1).
Shaw and Partners portfolio manager James Gerrish said last month that, with production in its nascent stages, Core Lithium’s risk profile is somewhere in between those two extremes.
“I think it is [a buy] with FY24 being the year where earnings really start to ramp up,” he said in a Market Matters Q&A.
“We like it, and believe it will trade higher from here.”
The market has indeed recognised this tremendous potential, sending the share price up almost 28% since 23 March.
The Motley Fool’s Bernd Struben tipped this week that Core Lithium is a sound buy, conditional on a decent investment horizon.
“With the company holding $98 million in cash as of 31 March, I believe the longer-term direction of the Core Lithium share price will be higher,” he said.
“The lithium space is attracting a lot of big-name, and deep-pocketed, investors.”
‘A future-facing, extremely rare, critical mineral’
Meanwhile, WA1 Resources is an explorer that recently found a deposit of niobium in Western Australia.
With only three mines in the whole world currently producing this mineral, Datt Capital chief investment officer Emanuel Datt noted how precious WA1’s find is.
“Niobium is a future-facing, extremely rare, critical mineral,” he said.
“Prices for niobium are relatively high at circa US$45,000 a tonne, reflecting the scarcity of the mineral.”
This development has sent the WA1 share price rocketing, more than tripling it year to date.
Niobium is in demand to make high-strength, low-alloy (HSLA) steel, which is much stronger than conventional steel at a lighter weight.
“The use of niobium in steel has primarily, we believe, been constrained by the supply of niobium concentrated in the hands of small private companies,” said Datt.
“New supply is essential to increase the penetration rate of niobium usage in steel production, which will bring significant reductions to construction costs and scope three emissions.”
There is also a potentially explosive catalyst as laboratories are currently researching using niobium to make batteries.
Datt believes there is “significant potential” for one of the big mining companies to buy this asset from WA1.
“Particularly amongst the iron ore producers, given existing marketing networks could be utilised to quickly increase the market penetration of niobium into the steel market.”
The verdict
Although lithium already enjoys hot demand that will persist for years, I favour WA1 Resources as a speculative buy over Core Lithium.
This is because of the exciting potential of a rare source for a rare mineral. This “sky’s the limit” optimism is precisely the reason you buy speculative shares.
That is not to say Core Lithium is a bad investment. But it’s not a pure speculative play, as far as I’m concerned.
