With all the recent stock market volatility, plenty of FTSE 100 stocks look dirt-cheap today. But, in my opinion, Rio Tinto (LSE:RIO) is the most exciting. So much so that I think I might even be able to triple my money in the long run.
How? One word – lithium. Let’s take a closer look at what could be one of the best UK lithium stocks to buy now.
A future FTSE 100 lithium king?
Thanks to the accelerating adoption of electric vehicles, demand for lithium is skyrocketing. After all, it’s the primary ingredient for lithium-ion batteries. Pairing this with restricted supply has sent prices through the roof. In 2021, battery-grade lithium carbonate shot up 486% to $41,925 per tonne!
And this may just be the tip of the iceberg. The royalties mining business, Anglo Pacific, recently made a presentation at its 2022 annual shareholder meeting, revealing various metal demand forecasts between today and 2040. Among them was lithium, with demand predicted to explode by 42 times!
On top of this, a report by Eurometaux revealed that European lithium projects are facing enormous uncertainty. Additionally, relying on imports from external suppliers will likely create severe bottlenecking problems, especially given other nations are simultaneously trying to secure the limited resource.
In other words, demand is set to surge, but supply isn’t growing anywhere near as fast. And that could be sufficient to propel this FTSE 100 stock to new heights.
Tripling my money with Rio Tinto shares
Today, Rio Tinto isn’t an active producer of lithium. But that may quickly change. Following investments in its Jadar and Rincon mining projects, the FTSE 100 firm is expected to reach a battery-grade lithium carbonate annual production capacity of 61,000 tonnes. At today’s prices, that’s worth around $2.56bn per year.
Versus the existing revenue stream of $63.5bn, that’s nothing groundbreaking. But assuming Anglo Pacific’s forecasts are accurate and global supply remains relatively constricted, the revenue from these two projects alone could land anywhere up to $107.4bn per year!
Moreover, demand for the group’s other products, namely aluminium, copper and iron, is also set to swell. Combined, these factors indicate that Rio Tinto has the potential to more than triple its revenue over the next two decades. As mining is a fixed-cost operation, profit margins are likely to expand simultaneously. And with a bottom line set to skyrocket, I believe Rio Tinto shares have the potential to deliver exceptional performance in the long run.
Taking a step back
Seeing the potential of this FTSE 100 stock is undeniably exciting. But I need to address the elephant in the room. In early 2022, the Serbian government revoked Rio Tinto’s license for its Jadar lithium project after environmental protests.
There’s a high chance the decision was politically driven, given there were ongoing elections at the time. But, regardless, the Jadar project is now on hold. And could stay that way indefinitely unless management can negotiate new licenses.
Since Rincon is a far smaller operation, the prospects of Rio Tinto shares potentially tripling my money is tied to the fate of Jadar. And that does create quite a bit of uncertainty. But it’s a risk I feel is worth taking for my portfolio, especially since shares are trading at a tiny P/E ratio of 5.4.
