Lithium boom and bust gives super funds a chance to catch up

One of the good things that emerged out of the massive boom and bust in Australia’s lithium mining space is that our big superannuation funds have fully emerged as counter-cyclical investors.

Now that the price of lithium and the share prices of many lithium miners and explorers are in the toilet, Australia’s largest super fund is planning to double its exposure to local lithium stocks over the next five years.

AustralianSuper, which invests around $300 billion in super funds is still confident that the global shift to electric vehicles will need plentiful supplies of lithium components over the next decade at least.

Senior portfolio manager Luke Smith, said the big player was using the price rout to bolster its stakes in producers of the key battery materials.

“The biggest opportunities for us as investors at AustralianSuper is when the prices are at cycle bottoms,” Mr Smith told Bloomberg.

Battery minerals a target

AustralianSuper is also looking at opportunities in other important minerals for the energy transition such as nickel, cobalt and graphite over the coming five years or more.

The big player recently raised its stake in Pilbara Minerals (ASX: PLS) to 6.12% and now holds around $1 billion in Australian lithium producers but expects to raise that investment as high as $3 billion over the next five years.

Lithium has taken investors for a really wild ride, with the Lithium Price Index falling a precipitous 80% or more from an early-2023 record.

Shortages give way to glut concerns

Initially investors were panicked by fears of shortages but more recently there have been warnings of massive near-term supply surpluses that have led to the postponement or cancellation of some mining plans.

Even in China which is the largest producer of electric vehicles, lithium sales growth has been slowing.

The other threat to lithium is that alternative battery technologies are being developed which may prove to be superior and use different metals.

Some of the worries about a supply glut could be self-managing, with low lithium prices and fast-rising mine infrastructure prices leading to a halt in mining and expansion plans.

One good example is Core Lithium (ASX: CXO) which recently stopped mining at its Grants open pit mine until conditions improve, and warned investors to expect an asset write down.

Former takeover target Liontown Resources (ASX: LTR) is also now struggling to finance its Kathleen Valley mine.

Super players actively trade

It is important to note that AustralianSuper and the other big super players don’t just buy stocks and shove them into a bottom drawer.

When the lithium bull run was in full swing in 2022 and in early 2023, AustralianSuper was selling some of its lithium stocks as the price flew much higher than seemed sustainable.

In the future they may become sellers again, should technological or other market changes occur.

For now though, AustralianSuper and other big players are using the downturn to soak up some extra shares at much lower prices.

“Clearly, we’re seeing now the opportunity become more attractive,” said Mr Smith.