As contrarian investors, we often find ourselves in unloved areas of the market. Eighteen months ago, lithium miners fell squarely into the ‘unloved’ category. In fact, it would have been difficult to find a more out-of-favour area of the market at the time. Our bottom-up research identified a select few lithium miners with strong fundamentals and attractive valuations. The Contrarius Australia Equity Fund first invested in the sector in March 2025 and as a group, these shares, led by PLS, have been meaningful contributors to the Fund’s performance. Lithium prices have since rebounded from the lows and lithium miners have partially rerated, although they remain under-owned by active fund managers. In this article, we discuss our view on lithium and our three key lithium-related holdings at quarter-end—PLS, Liontown, and Vulcan Energy—as each helps demonstrate different facets of our contrarian investing approach.
While lithium demand has historically been viewed through the lens of electric-vehicle adoption, the composition of that demand has already changed. Stationary storage is estimated to account for around 30% of global lithium consumption and is expected to contribute slightly more to this year's incremental demand than electric vehicles, the first year that has been the case. Some 85% of storage capacity added in 2025 was utility-scale, built largely to integrate solar and wind. This demand is more durable than annual installation figures suggest, because it is driven by the accumulated stock of renewable generation rather than by any single year's additions. Global solar installations are expected to fall in 2026 for the first time in over twenty years, as China shifts from feed-in tariffs to market pricing. Storage deployments, however, are forecast to grow a further 41% this year, following 48% growth in 2025. The more solar a grid has, the harder it is to absorb the next gigawatt: curtailment rises, negative prices become more frequent and the evening ramp steepens. The need for storage therefore grows faster than solar capacity. With solar still only 8.7% of global electricity generation, most grids have yet to reach the point where this effect takes hold.
Artificial intelligence (AI) adds to the same constraint from the demand side. Data-centre electricity consumption is expected to roughly double by 2030, and data centres are expected to install some 20–25GW of batteries to absorb the swings that AI training and inference impose on the grid.
A third source of demand comes from AI operating in the physical world, such as autonomous vehicles and robotics. Here, what matters is both the number of units and how intensively each one is used. Robotaxis already average around 50,000 miles (80,000km) each annually, close to four times the US average per driver. At that mileage, a battery that would previously have outlasted its vehicle now becomes a consumable that is replaced during the vehicle’s life. Energy and maintenance costs dominate fleet economics at those distances, which is one of the reasons why every major robotaxi platform is electric, even though electric vehicles remain about 6% of new US car sales. Autonomy turns electrification from a consumer preference into an operating necessity, so autonomous fleets create new battery demand rather than simply reallocating existing demand. A humanoid working continuous shifts would cycle its battery harder still.
The first of these sources of demand is visible in today's consumption data, the second is contracted and under construction, and the third is already operating commercially, though it is still too small to register in lithium demand. For physical AI, the commercial model is increasingly established, and the constraint is now manufacturing capacity rather than technology.
These three sources of demand building at the same time across much of the world imply a step-change in lithium demand. With supply growth constrained by multi-year mine development timelines and complex permitting, we see a supply-demand balance that favours higher lithium prices over time.
PLS’s primary asset is the wholly-owned Pilgangoora mine in the Pilbara: a large-scale, low-cost and long-life operation. The company is well run and maintains a solid balance sheet. Of all the ASX-listed lithium miners, we believe that PLS is best placed to survive any price downswings and thrive in price upswings. As shown in the chart below, the company has continued to add production and contain operating costs despite swinging lithium prices and significant inflationary pressures impacting the broader mining sector.
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Note: FY21-FY26 figures are actual results, while FY27e figures are estimates.
Sources: Company Reports, Contrarius Research
At the recent quarter-end, based on spot lithium prices, we estimate that PLS is trading on around 12x forward earnings. While that may sound fairly valued (or possibly overvalued) to some, we view this as far too low because it completely ignores a remarkably attractive company asset: its “P2000” expansion plan. At a relatively modest upfront cost, P2000 is expected to nearly double the production of spodumene concentrate at Pilgangoora while maintaining its “long-life” status with a 23-year mine life. Compared to a brand-new project, key aspects of P2000 such as the expected mining efficiency, the processing chemistry & yield, operational logistics, pricing discounts, and management competence are relatively known quantities. Were it a stand-alone business (admittedly, a slightly abstract concept), the P2000 project would have significant value, in our view. At PLS’s current share price, we believe we are largely getting this for free. The market seems to be looking in the rearview mirror and missing PLS’s low-cost growth options up ahead.
Over the past decade, Liontown has been focused on developing its Kathleen Valley project in Western Australia’s Northern Goldfields, a new mine employing underground mining methods at scale (a first in the Australian lithium space). For much of this time, Liontown has been burdened with elevated uncertainty, significant execution risk, and eventually a meaningful amount of debt, which was probably enough risk to put off most investors, including ourselves. First impressions have a habit of sticking (a point we made in our discussion on South32 earlier this year). Over the past year, Liontown has begun to put many of these concerns to bed, and we believe the market has been slow to notice.
Debt is the most obvious place to start. While reducing it has come at the cost of meaningful equity dilution, Liontown now carries A$190 million in net cash and its balance sheet looks robust. Its remaining debt is predominantly a loan from an off-take customer, Ford Motor Company, on favourable terms. As shown in the chart on the next page, underground mine development, i.e. how many linear meters have been excavated, has accelerated over the past year, with underground ore contributing more than half of plant feed in the latest quarter. The processing plant continues to steadily ramp up and lithia recoveries are showing improvement, with more expected as underground ore completely displaces open pit ore over the next year. With each passing quarter the running costs at Kathleen Valley are becoming clearer and the final capital expenditures (including those deferred during the recent lithium price downswing) are being completed. While risks, of course, remain, Liontown is significantly de-risked relative to its position a few years ago. At quarter-end, based on our estimates, the share looks attractive at around 9x free cash flow once ramped up. Moreover, Kathleen Valley was originally designed to be a significantly larger operation with much of the processing plant ready for higher volumes. Like PLS, we believe Liontown houses an underappreciated low-cost growth project. To that end, management have just approved a final investment decision to expand Kathleen Valley, committing about A$389 million to lift production by more than 50% by FY30, with first incremental ore expected in FY28. They expect to fund the project from existing cash and operating cash flow and estimate a 2.5-year payback on the project post completion.
Sources: Company Reports, Contrarius Research
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Vulcan Energy has recently begun construction of its Lionheart lithium project in south-western Germany. Lionheart is expected to be a low-cost, long-life geothermal lithium brine operation in a stable jurisdiction. A comprehensive funding package was secured late last year, with the equity component raised at A$4.00/share, more than triple the current share price. Once operational, Lionheart is expected to supply a critical mineral for the automotive industry from within Europe’s automotive heartland. Rising resource nationalism, carbon border adjustments, and supply chain localisation/security are all trends that benefit Lionheart’s position. In addition, Vulcan Energy has a number of potential nearby follow-up projects that could further leverage its large resource base. Despite the above, Vulcan Energy’s share price trades near its lowest level in six years. At quarter-end, we estimate that the company is trading on a mid-single-digit multiple of free cash flow once Lionheart is up-and-running, which looks remarkably attractive given all the above.
Sources: Bloomberg, Contrarius Research
So what is the market concerned about? Well, having secured the funding package and having commenced its long construction phase, the reality is that there isn’t much news flow to look forward to over the next two years—no production, no revenue, no profit, and no dividends. Regular updates on Lionheart’s construction progress will not be very interesting. In fact, the only thing analysts will be looking out for are hints of key risks such as cost overruns or construction delays. Without a near-term catalyst, market participants may simply prefer to stay on the sidelines. This is a short-sighted approach, and in our view provides long-term investors like ourselves with the opportunity to acquire Vulcan Energy at an attractive price.
Contrarian investing is a broader concept than many realise. It can involve buying shares in deeply out-of-favour areas of the market, such as lithium miners 18 months ago. But this is only one form that contrarian investing can take. Other forms can include companies with underappreciated growth projects, companies that have made underrated strides in derisking, or situations that simply require taking a longer-term view provided valuations are sufficiently supportive. The theme running through our contrarian, long-term, valuation-based approach is a willingness to think and invest differently. In our view, this willingness to be different is essential in our mission to outperform the market over time.
An actively managed asset allocation fund that invests in a portfolio of equities, fixed income and commodity-linked investments from Australia and globally. The Fund employs Contrarius’ valuation-based, contrarian investment philosophy.
The Fund employs Contrarius’ valuation-based, contrarian investment philosophy and aims to achieve long-term returns higher than the benchmark.
A flexible multi-asset allocation fund that employs Contrarius’ valuation-based, contrarian investment philosophy.
The Fund employs Contrarius’ valuation-based, contrarian investment philosophy and aims to achieve long-term returns higher than the benchmark, without greater risk of loss.
Disclaimer: This article is based on a commentary prepared by Contrarius Investment Advisory Pty Limited (“Contrarius Australia”, AFSL 506315), investment manager of the Contrarius Australia Equity Fund (the “Fund”, ARSN 664 226 331). Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Fund. Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT). Information is valid as at 30 September 2026. This information is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. Before acting on this information, you should consider its appropriateness and should read the relevant Financial Services Guide (FSG), Product Disclosure Statement (PDS) and Target Market Determination (TMD) available at www.contrarius.com.au. The article is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, neither Contrarius Australia, Equity Trustees, nor any of their related parties, directors or employees, nor InvestmentMarkets (Aust) Pty. Ltd. as publisher, provide any warranty of accuracy or reliability in relation to such information, or accept any liability to any person who relies on it. Interested parties should seek independent professional advice prior to acting on any information presented. Past performance is not a reliable indicator of future performance. Funds managed or distributed by Contrarius Australia may have a position in any of the securities referred to in this article, and such positions are subject to change at any time without notice.
Chris Watson
Director at Contrarius Investment Advisory Pty Limited.
Chris joined Contrarius Australia in January 2021. Chris was previously a director of Contrarius Investment Advisory Limited ("CIAL") in the United Kingdom from June 2017 until June 2018. He was employed by CIAL as an investment analyst from April 2012 until June 2018. Chris also previously worked for Allan Gray Ltd, South Africa’s largest privately-owned investment firm. He holds a Bachelor of Business Science (Quantitative Finance) from the University of Cape Town, and is a CFA and a CMT charterholder.
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