Which lithium stock gives you the best bang for buck: Core Lithium, Allkem or Liontown

As Chinese EV sales and lithium spot prices take a breather, I wanted to take a look at which ASX-listed miner offers the best value when it comes to market cap vs. metrics such as production and lithium resource.

Market cap vs. FY25e production

The below table is based on Goldman Sachs' forecasted production for FY25 on a lithium carbonate equivalent (LCE) and ownership basis.

Market cap vs. Resource

The below table is based on Goldman's resource and reserves data as of 3 March 2023. It's important to note that the data does not include any hydroxide and carbonate related resources. Therefore the table under-represents Allkem and to a lesser extent, IGO and Pilbara Minerals.

Core Lithium: Cheapest but with a twist

On a market cap to FY25e production basis, Core Lithium is the cheapest (the lower the market cap to production figure, the better).

However, it's worth noting that the stock is down 40% from its November peak. While all the other names are down just 15-20%. If Core did not sell off as hard, its market cap to production ratio would be in-line with its larger cap peers.

The stock is trading at a discount for a reason and Goldman has reiterated this view multiple times with a SELL rating based on factors including:

• Valuation: Current share price implies persistently high spodumene prices (~US$2,250 a tonne). It also has the lowest average operating free cash flow to lithium ratio among larger caps.

• Resource upgrade required: The valuation places onus on Core Lithium to deliver a large resource upgrade to justify its price tag.

• Production risk: Core has to juggle bringing its Finniss project online, ramp up production and provide for resource upside to support capacity expansion and life extension.

From the market cap to reserve ratio, you can see that Core is lagging significantly behind Pilbara Minerals, Liontown and Allkem (will explain Allkem next).

Allkem: The numbers don't do it justice

Pilbara Minerals, Allkem and Liontown are relatively competitive on a market cap to FY25e production basis.

The market cap to resource table only includes spodumene (for simplicity sake). At present, spodumene represents approximately 60% of Allkem lithium product mix.

By 2025, the tables are set to flip with carbonate and hydroxide taking up approximately 60% of its product mix. This will be supported by production from Olaroz (Stage 2 and 3 expansion), the Naraha hydroxide facility in Japan and Sal de Vida project in Argentina.

Under this rationale, it would be fair to more than half that market cap to resource figure.

Allkem has remained Goldman's favourite larger cap lithium pick. The broker is currently BUY rated thanks to:

• Valuation: Future opportunities via Olaroz Stage 3, Mt Cattlin resource extension, downstream at James Bay and potential potash production provides "upside risks to our forecasts"

• Strong growth optionality: "Allkem has one of the best production outlooks in our lithium coverage, with broad-based growth optionality, second only to Mineral Resources."

• Largest resource in our coverage: "Allkem has the largest lithium metal contained resource base amongst our coverage when factoring in South American brine assets and second largest reserve."

Liontown: It just needs to execute

Liontown is almost the cheapest for both the FY25e production and resource metrics. However, it's also the furthest away from production status, with expectations to deliver its first tonnes by mid-2024. Being so far out from production in this climate is fraught with risks. On 20 January, Liontown announced a massive cost blowout for Kathleen Valley, with costs increasing to $895 million from previous expectations of just US$473 million. Liontown shares fell as much as 15% on the day of the announcement.

This also means Liontown probably won't get a taste of selling spodumene at US$8,000 a tonne.