• Lithium Americas offers significant long-term value despite the current lithium market glut and stock price declines due to its large Thacker Pass deposit and low-cost production potential.
• LAC benefits from strong US government support and General Motors’ investment, positioning it well for future growth in the domestic EV supply chain.
• Key risks include potential project delays, cost overruns, and further lithium price declines due to economic slowdowns and increased supply.
• Long-term investors may find LAC undervalued. If it achieves competitive production costs and meets development timelines, it has substantial profit potential.
• Lithium Americas aims to have similar costs to South American miners, as lithium is less labor intensive than most mines, and the US project may have greater capital efficiency.

Lithium mining companies are often a target for investors looking to ride the wave of long-term transitions toward electric vehicles. Most lithium is currently produced in brines in South America. However, major developers such as Lithium Americas (NYSE:LAC) offer a pure-play focus on the North American lithium market in Nevada’s Thacker Pass deposit. Research indicates this deposit is the largest in North America and potentially the largest in the world. If developed and operated at a sufficiently low cost, Lithium Americas could become one of the most powerful lithium producers globally.

Since Lithium Americas Argentina (LAAC) split off from LAC, both companies have seen sharp stock price declines. This trend correlates to the sharp fall in lithium prices since the COVID-era shortage peak. The market is in a glut, which may grow as LAC expands in US production. LAC is down over 60% since its launch last October, but has held its ground over the past six months. It is up nearly 80% since its September trough, potentially encouraging a mix of value and growth-focused investors looking to buy it at a discount. Thus, I believe it is an opportune time to broadly analyze the company and the lithium market.

Lithium Americas May Be Profitable in A Glut

The company faces significant support from US companies and regulators. General Motors (GM) also owns a large stake in the firm as it seeks to develop a vertically integrated EV supply chain. There is some risk regarding EV demand as Trump may remove electric vehicle tax subsidies. That said, his ally Elon Musk seeks to improve lithium mining capacity in the US, making LAC a potential benefactor despite some regulatory risks to EVs in general. In October, LAC benefited from a Department of Energy loan of $2.6B with a 0% spread to Treasury rates to fund the development of this project.

However, supply expansion may not benefit LAC. The North American uranium market shares the fundamental issue facing Lithium Americas, as I’ve detailed regarding Cameco. Although there are only a small number of lithium deposits in the world, those deposits are vast. Though development costs are steep, once completed, they can yield tremendous output. The Thacker Pass region is expected to produce enough lithium for 800K vehicles per year.

Still, the core issue is that South American mines should have lower production costs than LAC in the US due to lower wages and regulations in the region. Accordingly, the lithium market is generally in a chronic glut despite tremendous demand growth over the past decade. The COVID-era led to an acute shortage as production fell short while demand rose. However, it was short-lived, and lithium prices are now back at pre-COVID glut levels. See below:

This chart depicts prices in Yuan since China is a voracious demand driver for lithium globally. Converting, the current USD price of a ton of lithium is ~$10.9K. Notably, Morningstar analysts estimate the all-in sustaining breakeven price for LAC’s Thacker Pass at $7K per ton. The company estimates it should initially produce around 40K tons per year and up to 80K as its development is completed.

At current prices, based on the AISC estimate, we should expect around $3K to $4K in profits per ton. That implies an operating profit of about $120M annually, up to $320M at the high-end output and low-end cost estimate. LAC’s market capitalization is just $870M today. The stock would likely be undervalued today, even at the low-end operating profit range. The $2.3B in debt will give it ample leverage, but I feel it is highly beneficial for equity investors, given the meager interest rates. Due to this, its cost of capital is heavily skewed toward equity, discouraging equity dilution as it can receive cheap DOE funding for growth.

If these estimates prove correct, at current prices, LAC’s forward “P/E” (in 2028 terms) may be around 2.7X to 7.3X today. There are two critical risks to that estimate. One, the all-in-sustaining cost estimate may be too low. Morningstar’s analysis implies LAC should produce at similar costs to Albemarle (ALB), which should benefit from lower labor costs in Brazil. However, I think this may be reasonable, given that LAC will benefit significantly from being closer to US EV battery factories.

More importantly, lithium mining is comparatively capital-intensive compared to labor-intensive. This makes it fundamentally different than other types of mines, like precious metals, which are very labor-intensive. Since lithium is more capital-intensive, we may expect the Thacker Pass project to use cutting-edge equipment with potentially greater redundancy (parts, energy, etc.) than an American operation. On that note, the company’s managers are generally experienced in the lithium industry and are likely using that expertise to follow best practices found in previous operations.

The company has started construction and expects initial production in 2027, with output ramping up in 2028. Current conditions are not ideal for selling lithium, but that may change over the next three years. There is a fair amount of risk that the project is not completed at projected costs or in time, but with significant DOE funding, I have reasonably high expectations. There is also a risk that the project’s variable costs are not as low as I estimate. Still, I think that may be true, given LAC’s potential edge in capital development and comparatively low long-term labor needs.

Lithium Glut May Expand as LAC Produces

Despite today’s low lithium price, LAC may be undervalued based on the above profit estimates. That said, lithium is already in a glut. LAC promises to expand global production, potentially increasing that glut significantly. This risk may be even greater if EV sales in the US slow due to an end to Federal subsidies. However, Tesla (TSLA)’s share price rocketed over 60% over the past month following Trump’s election. Although risks remain, the market is undoubtedly not bracing for a negative impact on Tesla’s EV sales.

The growth rate of EV sales has declined this year, causing disappointment in the industry. Still, that is mainly due to a general decline in US vehicle sales. High car prices and interest rates push new car loan payments upward toward $1K per month, making vehicles generally unaffordable today. EVs are slowing but have proven far more resilient than vehicles in general, still rising in 2024 despite a stagnant depression in overall vehicle sales:

Electric vehicles have a trend toward becoming cheaper over time as production and supply chains expand and become more efficient. Theoretically, electric vehicles require far less labor to produce than conventional vehicles due to their lack of transmissions and fewer “moving parts.” As with lithium mining, EV factories have high upfront capital costs and lower long-term labor costs. As conventional vehicle producers struggle with labor strikes and union actions, we should expect conventional vehicles to become more expensive. In contrast, EVs may become cheaper as more car companies invest in EV supply chains.

High consumer borrowing rates and, in my view, a stagnant or mildly depressed economy for the median American (not to be confused with the average, skewed by the upper-income group) do not bode well for vehicle demand. 2024 has not been a great year for electric vehicles, leading to a glut in lithium as demand failed to increase as fast as previous estimates indicated.

Lithium has a commodity super-cycle of its own, which seems comparatively fast. Lithium prices skyrocket when EV demand grows faster than lithium supply, leading to a surge in development project funding. As more lithium projects are developed, we’re seeing the market fall back into a glut.

Looking out to 2027-2028, I hope EV demand picks up. That would likely require some improvement in real wages for median borrowers and a decline in vehicle borrowing interest rates. No guarantee will occur, as many expect upcoming economic changes (tariffs or government layoffs, for example) to harm the economy potentially over the next two years. Until policies are created, it is difficult to speculate on what will occur; however, the immediate labor market trend is, in my view, quite negative.

The Bottom Line

At this point, I think there is an equal probability that the lithium glut will expand by 2027-2028 vs. shifting back toward a shortage. I think LAC may be undervalued today if it can achieve low production costs while developing its mines on time and within budget. As long as LAC is below $5-$7, I think it fairly discounts the notable risks in this project and the lithium market. However, I believe the US trend toward greater domestic production and lower dependence on foreign supply, an effort Elon Musk seems to support, puts LAC in a position to continue to benefit from government subsidies or indirect support.

I believe LAC is best seen as a long-term investment with a horizon of at least ten years. Assuming a plan to hold LAC until the 2030s, I think it is a great value and growth investment today. The chief long-term risk is its ability to produce lithium as cheaply, if not more so, than its South American rivals. However, looking out to the 2030s, I expect EV prices will continue to decline while conventional vehicles are phased out, simply due to superior economics. Although not dependent on government subsidies, those are accelerating the transition. Demand for lithium may expand if sold-state battery technologies are produced at scale, an effort numerous car companies are working on today. These batteries may have two to three times more power storage capacity but should require more lithium per battery.

I am bullish on LAC from a long-term value standpoint. Price declines are a potential accumulation opportunity for long-term investors. That said, I would not be surprised to see LAC’s price fall in the short term. The key immediate risks are its ability to develop Thacker Pass on budget and on time and produce lithium at a competitive cost and at the volumes the company has indicated it should.

Secondly, the price of lithium may fall further if the global economy slows. That is possible given most Western economies’ weak labor market and consumer trends. A recession would harm the EV market, but it should harm the conventional car market more (extrapolating current trends), potentially improving EV’s edge in the long term.

LAC is undoubtedly a higher-risk investment, but given its price compared to its high long-term profit potential, I expect long-term investors will be rewarded.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LAC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Lithium Americas: Long-Term Value And Growth As US Poised To Dominate Lithium By 2035 appeared first on Up2info.com.

• LAC is an early-stage lithium producer with a promising asset in Nevada, poised to benefit from the projected lithium supply gap over the next two decades.
• Despite current oversupply issues, LAC’s Thacker Pass project is well-funded and on track to begin production by 2027, with significant revenue potential.
• LAC’s partnership with General Motors and federal support de-risk the project, making the stock undervalued with a potential 5x upside.
• We rate LAC a ‘Strong Buy’, despite the significant execution risks.

Here’s an interesting stat we just came across – by the year 2040, some analysts are expecting that the global supply of Lithium, the metal at the heart of the green energy revolution, will only meet about half of global demand.

In other words, over the next 15 years, we’re going to be running significantly short on a core input to one of the most important electronic components of tomorrow – batteries.

While the long-term outlook for lithium producers is strong given this looming gap, recent oversupply issues have led to a wipe-out in the sector, with many stocks losing 80% or more in value from highs.

In this article, we’re taking a look at Lithium Americas (NYSE:LAC)(TSX:LAC:CA), an early-stage lithium producer with rights to mine a particularly attractive bit of land in the north of Nevada.

The company hasn’t yet begun digging, but it is nearing the end of the long and arduous process of getting everything in order to begin mining operations.

While the company has a significant execution challenge in front of it, if management can pull it off, we think the shares look extremely undervalued at their current price.

Today, we’ll explore the long-term opportunity LAC is targeting, outline our thoughts on the company’s prospects, and ultimately explain why we’re so bullish on this potential lithium supply gap play.

Sound good? Let’s dive in.

LAC’s Financials

Let’s begin, as always, by looking at LAC’s financials.

In short, LAC is currently an empty husk of a business worth around $800 million in market cap.

The income statement is basically completely empty as LAC has not yet begun producing lithium carbonate, but the firm does have an interesting balance sheet:

In short, the firm has about $340 million in cash, alongside $331 million in net property, plant, and equipment. This accumulated PPE is mostly from Thacker Pass construction costs and infrastructure built in advance of (hopefully) the full-scale production launch.

The firm doesn’t have much in the way of liabilities, as of September 30th, 2024, which makes the company’s enterprise value materially lower than one might initially expect:

Looking ahead, the company’s main operational push is to bring Thacker Pass online:

The company markets the mine as “The largest known Measured and Indicated (M&I) Resource in North America”, which makes it an interesting asset.

From a geopolitical point of view, Lithium is a key component in many supply chains, including those that are related to the military. Fighter jets need batteries and electrical components just as much as electric vehicles, which is, in our view, partly why the federal government has been pushing to help LAC get the mine up and running.

A recent grant from the DOD and loan from the DOE for the development of on-site processing facilities should ease financial pressure on LAC, and provide a smooth financial ramp for scaling production.

Additionally, LAC recently partnered with General Motors (GM) on a joint-venture structure for the mine. This makes economic sense for both parties, as GM will be able to access a stable, low-cost source of Lithium carbonate for EV production, and the terms of the deal also appear accretive to LAC shareholders over the long run:

This agreement should help LAC with initial Lithium Carbonate offtake, which also boosts the project’s early economics and de-risks it from an operational POV.

Timeline wise, LAC has been hard at work getting all of the pieces in place to begin major construction on the mine:

Going forward, the firm has essentially begun a full build out of the mining infrastructure required, and every step that gets completed means that investors are one step closer to revenue coming online:

For our two cents, we think the Thacker Pass mine is well-funded, and with only a small gap in finances remaining, it appears highly likely that the mine will open as scheduled.

This is the single most important step in turning LAC into a viable business.

LAC’s Valuation

So – with Thacker Pass on track for opening in 2027, what should investors be paying for LAC’s stock?

Right now, shares are trading at roughly 1.1x FWD book, but this doesn’t take into account the company’s true potential.

Once Phase 1 is up and running in 2027-2028, what will LAC’s financials look like?

Here’s how we see it.

As it stands, Lithium Carbonate prices are trading at roughly 79,000 CNY per tonne in Shanghai:

In USD, this equates to roughly $10,900 per tonne, or roughly $10.9 per KG.

Lithium prices on COMEX appear similar at present:

During Phase 1, LAC expects to produce around 40,000 tonnes per year, which would, at current prices, equate to roughly $436 million in revenue.

Here’s the thing – we anticipate Lithium prices will increase over the life of the project, as a result of the impending projected supply gap by 2030, through 2040:

This doesn’t count new production that this projection hasn’t picked up on that will inevitably come online throughout the next decade plus, but the lag time for setting up lithium mining is quite long, and thus we see a serious supply / demand imbalance setting the stage for higher prices over the interim.

Historically, prices have ranged between $5,500 and $83,000 per tonne, which means that we’re at the low end of the range. That said, even if prices only gradually increase back up to ~$15,000 – $20,000 per tonne over the interim, then LAC would see a significant potential boost to cash flow in the $600 million – $800 million range, assuming stable production of 40,000 per year.

This also doesn’t take into account LAC’s potential for Phase 2 of Thacker Pass, which could double overall production to 80,000 tonnes per year.

As we see it, we think Thacker Pass could produce anywhere between $600 million and $1.2 billion per year between the years of 2028 and 2040.

If you assume an average of $800 million per year in revenue for Thacker Pass, then you’re looking at ~$500 million in revenue for LAC, given the company’s 62% stake in the mine.

On the cost side, the company is projecting $6,743 per tonne operating costs:

At present, this indicates an operating margin of roughly 41%, given the current Lithium price at ~$11,000.

If prices increase, we’d expect to see margins increase towards the 60% range, given a projected price of $17,500 per tonne.

In the example above, you’d end up with roughly $800 million in revenue, as discussed, with $480 million in operating income.

Given LAC’s 62% stake, this would work out to almost $300 million in operating income at that given run rate.

Looking at ALTM, a leading lithium company, the firm currently trades at roughly 25x blended EV/EBITDA. Assuming a similar valuation on LAC’s operating income, you’d end up with ~$7.5 billion in market cap.

This comparison doesn’t bake in size, however.

Given ALTM’s scale is roughly double LAC’s at present pricing, we’d be happy cutting LAC’s valuation to a more conservative ~$4 billion.

Thus, while there are a lot of inputs to this estimate, but we’d argue that LAC has roughly 5x upside, from $800 million in market cap to potentially $4 billion over the next 5 years if the company can execute.

Risks

There are a huge number of risks associated with this assumption.

First off, LAC’s costs of operation could inflate, the company’s Phase 1 may miss production targets, and the company may never see Phase 2 production hit the market.

Lithium’s price may also remain stagnant.

Long story short, our inputs for LAC’s potential run-rate at full capacity have a lot of moving parts, any of which could misfire, causing our upside estimate to be too aggressive.

We’ve tried to be conservative on each of our projections, but there are always risks that our inputs don’t end up matching reality this far out.

Additionally, there are significant execution risks for LAC in the next 3 years, getting to the point where the company can begin mining operations. The financing looks sound, but if cost overruns or delays hit the project, LAC could run into hot water.

After the mine is up and running, there are also considerable execution risks with the project that come with any capital-intensive endeavor.

Overall, we feel like there’s significant upside with LAC if the company can get Thacker Pass to production, but there are also a lot of paths to material capital impairment for investors.

As we said in the title – LAC is a high potential reward, but also high-risk play.

Summary

Thus, while LAC appears to be a high-upside lithium-linked play in the event management can execute, if they can’t, then the downside risk is also substantial.

This is why we’re quite bullish on the stock, but would also recommend a smaller position size than normal. A small loss shouldn’t be too consequential to a portfolio, but the alpha one could harvest in a potential win could have an impact on total returns over time.

Consequently, we rate LAC a ‘Strong Buy‘, with the added caveat that a smaller-than-average position in this high-risk play appears appropriate.

Stay safe out there!

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Lithium Americas: High Risk, But Very High Potential Reward In This Lithium Supply Gap Play appeared first on Up2info.com.

• The lithium market is recovering, with Arcadium Lithium’s $6.7B takeover by Rio Tinto signaling rising future lithium prices due to increasing EV demand.
• Lithium Americas stock is undervalued, with positive developments at Thacker Pass and potential DOE funding, making it a strong investment opportunity.
• LAC’s technical momentum is improving, with a long-term bottoming pattern and favorable risk-reward ratio, suggesting significant upside potential.
• Future lithium carbonate prices could triple, boosting LAC’s revenue to $1.1B-$2B by 2028, making current projections seem highly pessimistic.

After years of underperformance due to oversupply issues and a sluggish economy, the lithium market is finally charging up again. I recently discussed why “It was time to go long” Arcadium Lithium (ALTM), and just weeks later, mining giant Rio Tinto (RIO) announced the stock’s takeover.

The deal valued Arcadium Lithium at about $6.7B, which is cheap. This dynamic could be why Rio wanted the deal done quickly and quietly, as a seismic shift appears to materialize in the lithium market. Lithium prices will likely rise in future years as electric vehicles, “EVs,” and other lithium-related demands recover and the transitory oversupply issues dissipate.

Lithium Americas Corp. (NYSE:LAC), is another exciting company in the recovering lithium industry. Recently, LAC received excellent news regarding its joint venture with General Motors (GM) at Thacker Pass. Also, LAC could see more positive developments as its DOE funding may be finalized soon.

LAC stock has been clobbered during the lithium downturn. Thus, its stock is relatively cheap, and given the positive developments in the lithium market, LAC’s price will likely move much higher as we advance. Another critical factor is that lithium stocks should recover well before lithium prices, which is likely why the stock is moving here.

Technically – $2 Was Likely The Bottom

LAC became massively oversold during the drop in April and May, a decline that persisted into the summer and even the fall. However, the bottom may have occurred when the early August mini-crash happened, and LAC dropped to $2. About a month later, LAC retested the $2-2.25 support zone.

This appears like a long-term bottoming pattern, and the technical momentum seems to be shifting to a more favorable pace. The 20-day MA recently went above the 50-day MA, and we may see continued progress as the 50-day MA approaches the 200-day MA.

The momentum shift is critical as it impacts sentiment. As sentiment has been extremely poor for a long time, improved sentiment could drive this stock much higher as we advance. Moreover, positive news flow and sentiment are all LAC will have because the company will unlikely have any substantial sales until 2027 or 2028.

From a technical perspective, LAC could bounce around the $3-4 range before breaking out to the $5-7 level, potentially closing the gap. Crucial support remains around $2.80-2.50, and we can institute stop-out levels below support points, just in case. Despite the potential for more volatility and turbulence, the risk-reward ratio appears favorable in LAC.

What Makes Lithium Americas Special – Thacker Pass

The market may not care about what the company made today or yesterday. It’s primarily about what a company can make tomorrow or a year from now, which puts LAC in a highly favorable place. The company received a conditional commitment for a $2.26B ATVM loan from the U.S. DOE earlier this year. Now that GM is “all-in” on Thacker Pass, it’s likely only a matter of time before more constructive developments regarding the DOE loan are revealed.

For anyone unfamiliar with it, Thacker Pass is a massive project with North America’s largest known and measured lithium reserves. LAC has exclusive rights to develop and operate the vast mine, which should provide approximately 40,000 tonnes of battery-quality lithium carbonate in phase one.

Therefore, LAC has an extraordinary opportunity to develop the Thacker Pass project provided the DOE and other loans and profit from the lithium production in the coming years. LAC’s market cap has dwindled to around $700 million as the lithium route persists.

However, the Thacker Pass mine could be operating at full capacity (phase one) in 2028, enabling LAC to realize $1B+ in annual revenue as the initial phase of lithium production comes online. Phase two production is expected to yield double, approximately 80,000 tonnes of lithium carbonate annually, and the mine’s life expectancy is estimated to be at least 40 years.

LAC’s Estimates Could Be Low

Few analysts cover LAC’s future earnings potential, and the estimates may be lowballed here. “Consensus” sales estimates are only about $135M in 2027 and $440M in 2028, presumably when Thacker Pass will be at full production (phase one). This seems highly pessimistic, and LAC sales could be much higher as market dynamics stabilize and improve.

Lithium Carbonate

Lithium carbonate prices have collapsed due to transitory oversupply and lower-than-anticipated demand for EVs. Moreover, the global slowdown and high interest rates have slowed various economic segments, heavily impacting the lithium space.

The price has cratered from a high of around 600,000 Yuan per tonne to just around 73,500 per tonne. If we translate to USD, it’s like lithium crashing from about $85,000 a tonne to just about $10,000 here.

Future estimates for LAC and other lithium miners could be predicated on current rock-bottom lithium prices and likely don’t factor in much room for growth. However, things could turn out much differently, as lithium carbonate prices could increase substantially in the coming years.

EV Demand Likely To Skyrocket Again

Whether EV demand will improve is a subject of some debate, but substantial growth will likely return. The automotive world is becoming more electrified daily, and many markets even have targets to phase out ICE sales. For instance, the UK plans to ban purely gasoline and diesel sales by 2030.

Denmark intends to ban ICE sales by 2030 and hybrid sales by 2035. Germany has approved a resolution to allow only emission-free cars on the road after 2030. Many countries, including the most significant car market globally, China (2040), have dates set to phase out ICE and, in some cases, hybrid vehicle sales.

Therefore, whether we like it or not, the world is going electric, and it will need much more lithium carbonate in the future. Global EV growth continues to be staggering, as sales as a percentage of new vehicle sales have increased from just 1% in 2017 to 18% in 2023.

U.S. EV Sales Likely To Surge

The U.S. is no exception, and despite the recent slowdown in growth, EVs should continue capturing more and more market share from aging ICE technology in future years.

EVs accounted for about 7% of new vehicle sales in the U.S. last year. This year, the percentage of EV unit sales will likely be close to 10% and may reach close to 5 million vehicles, or roughly 30%, by 2030. Therefore, the growth potential for lithium carbonate is immense. This dynamic is why we see GM securing its future lithium by partnering with LAC.

Moreover, LAC will likely make much more than its estimates imply in the coming years. Looking back on LAC estimates, the consensus estimate is around $440M, or roughly $11K per tonne for its anticipated 40,000 tonne production.

Really? Lithium carbonate is around $10K per tonne now, an 88% drop from the 2022 highs and back down to around the early post-coronavirus era when EV sales and sales, in general, were essentially dead. These analysts believe lithium carbonate will be at $11K in 2028. There is a bullish target for $600M in sales for 2028, suggesting the bullish case incorporates a price of roughly $15K per tonne, which seems very lowballed.

The Bottom Line: LAC Stock Likely Has Solid Upside Ahead

No one knows exactly where the price of lithium will be in 2028, as it’s 3-4 years away. Nonetheless, markets have a tendency to correct themselves over time. Lithium prices were too low in 2020 as the EV rush began. However, lithium became overbought, and oversupply flooded the market in late 2022 and 2023.

After a prolonged two-year bear market, prices have probably become too low and may be much higher than $10-15K per tonne in three to four years. Even if we see a relatively modest recovery, lithium carbonate could be at about 200-250K Yuan per tonne in the next 2-3 years, in my view.

This dynamic suggests that prices for lithium carbonate could double or triple in a relatively short time frame. Therefore, if translated to dollar terms, a tonne of lithium carbonate could sell for approximately $25-30K in future years.

LAC’s phase one production is expected to yield 40,000 tonnes of lithium carbonate in 2028. Using the midpoint of our lithium carbonite price estimate of $27.5K, LAC’s revenues could be around $1.1B or higher as it enters full production capacity at phase one. If lithium carbonite is around $30K in 2028, LAC’s sales could be $1.2B. If it’s at around $50K per tonne in 2028, LAC’s sales could be about $2B.

Also, there is likely a higher probability that lithium carbonate will be closer to $50K than $10K per tonne in several years. Therefore, I find the current LAC and other lithium minor projections absurd, as they seem to be predicated on a lithium carbonite price that will move up by 10-50% over the next 3-4 years when, in reality, prices could triple or more by then. LAC appears very underpriced here, and my one-year price target range for LAC is $5-6, almost 100% higher than its current price.

Risks to LAC

Of course, with great reward potential come significant risks. LAC is still in the development phase of the Thacker Pass project, and due to its immense size and scale, the development could take longer than expected. The costs could also be higher than we expect. Therefore, dilution or additional debt is possible in the future. LAC introduced 55M of new stock, pricing it at about $5, when it diluted shareholders earlier this year. This was a substantial increase in share count, and we want to avoid future dilution. Other risks may include unforeseeable issues at Thacker Pass, depressed lithium prices, worse-than-expected profitability, and other factors. Investors should consider these and other risks before investing in LAC.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC, ALB, SQM, RIO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am long a diversified portfolio with hedges.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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The post Lithium Americas: This Surge Is Only The Beginning appeared first on Up2info.com.

• The new ownership structure of Thacker Pass, with Lithium Americas holding 62% and General Motors 38%, is a positive development for the company.
• GM’s $625 million investment, including $430 million in cash and $195 million in letters of credit, provides crucial capital for Thacker Pass.
• Despite asset dilution, the GM partnership and DOE loan will help LAC complete Thacker Pass by 2028, unlocking significant future growth potential.
• Future stock price estimates range from $3-$4 in 2028 to $17-$30 in 2032, reflecting the positive long-term outlook despite short-term adjustments.

An update on (NYSE:LAC) is merited given the new ownership structure of Thacker Pass. Let me start off by saying that this is an overall positive for the company. For the past 9 months, low lithium prices have kept a lid on lithium stocks, which has stymied production and development activities. That wind appears to be shifting after the past few weeks of announcements (Arcadium buyout, and new ownership structure for Thacker Pass).

What’s the highlights of the new GM deal?

• The ownership of Thacker Pass, as an asset, will be owner by Lithium Americas (62%) and General Motors (38%)
• The two (2) entities will create a joint venture (JV) to be the owner/operator of Thacker Pass
• GM will contribute $625 Million in capital:
  • $430 million in cash
  • $195 million in as letters of credit with no interest
• Separate from the deal, LAC announced the DOE Loan is expected to close in a few weeks.

While I don’t love the fact that LAC had to give up some of the ownership of the asset, it was likely the best option considering the share dilution with the previous Tranche 2 (which is no longer applicable) would have been significantly detrimental at current stock price levels and offered more issues in the future given the controlling stake GM would have had.

My previous article highlighted the timeline and economics of the company. For those who are interested in the details, you can reference the link here. Full disclosure, I get a few pennies every time someone clicks on the link. I’ll use the money to buy a case of beer and I promise I won’t ask you to like and subscribe.

The timeline has not changed from my previous article. The economics on the other hand have shifted given the fact LAC is giving up 38% of the asset and hence why I am writing this to update my estimated future price forecast (NOT FINANCIAL ADVICE).

Estimated Timeline and Milestone for Thacker Pass:

Click to enlarge

With the same timeline as before, I’ve attempted to forecast the company’s financials based on previous guidance and studies. With this, I’ve attempted to forecast what a realistic stock price may look like based on competitors’ financial ratios. I used the ratios from currently producing competitors (Albemarle (ALB), Sociedad Quimica y Minera de Chile SA (SQM) and Arcadium (ALTM) – soon to be Rio Tinto) in an attempt to understand what (LAC) might look like when they are a lithium producing company. The below graphic shows the ratios used, followed by the second graphic, which provides rough estimates of what a financial picture could look like stepped out to 2032.

Financial Ratios used for Price Analysis (Self)

Future (LAC) Price Estimates

2028 Estimate Price Range: $3 – $4

2029 Estimated Price Range: $5 – $9

2030 Estimated Price Range: $5 – $9

2031 Estimated Price Range: $11 – $12

2032 Estimate Price Range: $17 – $30

Conclusion

While the GM investment does result in an adjustment to the company’s future earnings, it does offer a life raft and a way to clear the current log jam that has plagued not only LAC but other lithium mine developments across the globe. With this new money, and the DOE loan coming through, I would expect LAC to complete Thacker Pass and bring it online in 2028. Future forecasted share prices have decreased from an economic forecasting basis because of the asset dilution. However, the future growth potential is still in the 2-3x range looking out into 2029 and even more as Phase 2 is developed and comes online in the early 2030s. Just remember, 62% of something is greater than 100% of nothing.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• The General Motors funding de-risks the project and triggers conditions to unlock a pending $2.3 billion DoE loan, expected to close in weeks.
• LAC has expansion capability beyond the initial mining phases being reported.
• The long-term outlook for Lithium Americas is strong, driven by increasing lithium adoption, be it transportation or fixed storage.
• Despite macroeconomic risks, Lithium Americas represents a top-tier lithium investment, with favorable mining conditions in Nevada and significant growth potential.

In our last article concerning Lithium Americas Corp. (NYSE:LAC) we wrote that General Motors Company (GM) could possibly mimic Standard Lithium Ltd. (SLI) and go with project-level financing due to the low share price of the stock. With the news out on Wednesday about LAC and GM, that is precisely what has occurred. In this article, we will look at the GM financing news and more importantly what investors can expect next (in order to profit).

General Motors Loan Explained

Looking over the press release put out on 10/16/2024 we see highlights of GM and LAC forming a joint venture. Note I have summarized the press release to reduce clutter and make for simplistic reading.

• Lithium Americas will have a 62% interest in Thacker Pass.
• GM will have a 38% interest in Thacker Pass.
• GM will commit $625 million total.
• Lithium Americas will contribute $387 million of funding to the JV for its 62% ownership in the Project:
  • $211 million to be contributed on the date of the JV closing.
  • The remainder is to be contributed upon FID (Final Investment Decision) for Phase 1.
  • Expenditures on capex (after August 2024) are being credited against and reducing this amount, along with other adjustments.
  • As of June 30, 2024, Lithium Americas had approximately $376 million in cash and cash equivalents.
• LC Facility provided by GM to the JV as part of its consideration for its equity interest will have no interest and maturity consistent with DOE Loan requirement that will be withdrawn once replaced with cash that is generated by Thacker Pass.

Future Short-Term Catalysts To Profit From

Now that GM has formed a joint venture with LAC and taken ownership of 38% of the project, the DoE loan can move forward. LAC was also gracious enough to tell us the timelines concerning the DoE loan via:

“The Company continues to work closely with the DOE and expects to close the DOE Loan in the coming weeks. The Company and GM are targeting making the FID and issuing full notice to proceed for Thacker Pass by the end of the year, following the closing of the DOE Loan and the JV Transaction.”

That is about as simple as you can get. Now, how much could the DoE loan of $2.3 billion closing push the stock up? Impossible to say. How much is factored in already or will be by the time the DoE loan closes? Short-term guesses aside, long-term this project is now at the watch as it is being constructed and waiting. The project is estimated to take three years to complete phase 1 (40,000 tonnes target output with phase 2 being an additional 40,000 tonnes). This brings me back to a point I have often made that Lithium Americas has much expansion potential if you look at maps provided by the company such as:

And future probable project locations based on lithium concentrations.

We might assume three years to get Phase 1 completed (or a little longer with Mr. Murphy lurking). At an unknown time frame, we have Phase 2 kicking off for the additional 40,000 tonnes. The most likely expansion after those are just across the road from Thacker Pass on the south side. The northern properties could be expanded upon in the future. It would depend upon lithium demand of course, but it is an interesting wild card to ponder for the long-term investor.

Impact Of Politics On Thacker Pass

With the upcoming elections, we are faced with two outcomes that frankly are both most likely beneficial for lithium. Now we can’t speculate on who will be better for the overall economy, but we can look at the track record of both concerning EV and lithium. If Vice President Harris wins the election, we might assume she will continue the EV push per the continued policies of the Biden Administration. President Trump, on the other hand, started the critical elements list and could continue his push for lithium independence from China. Ignoring the economy and just focusing on the politics I think lithium could benefit from either politician. The biggest risk, however, is the economy.

Long-Term Outlook For Lithium Americas

If we ponder what the future looks like I think we will see a world that is much quieter (due to ICE engines losing market share). Charging stations will continue to be built out. Consumers will continue to adopt EVs in increasing amounts each year as we are currently seeing. An inflection point will be reached where it does not make financial sense to run two R&D lines for ICE and EV. Carmakers could stop ICE production. Of course, this could be 20 years out or maybe 10. Very hard to say currently, but it is fun to think about how the world will change. With this change, should come an increase in demand as illustrated below.

This brings me back to demand. Where is this demand going to come from? Lithium demand from cars and power tools is growing now. Aircraft, trains, and boats might come later on. Fixed power storage is another source of lithium demand and that sector is growing rather fast if we look at Tesla, Inc.’s (TSLA) sales numbers from July 2024. We can also see energy storage growing per Tesla’s July financials:

and

Per Tesla’s July 2024 IR slide deck:

“The Energy Storage business continues to grow rapidly, setting a record in Q2 with 9.4 GWh of deployments, resulting in record revenues and gross profits for the overall segment.”

And we can see this growth illustrated below:

Click to enlarge

Lithium Americas Risk Factors

The news that General Motors is funding Lithium Americas for $625 million (for 38% ownership in Thacker Pass) is a massive de-risking moment. This funding from GM should trigger conditions to unlock the pending DoE loan. The remaining risk is generally macro risk from the broad economy and inflation. If the economy continues to deteriorate, then, obviously, people will find it challenging to purchase big-ticket items such as an automobile. Yet, the mine is at least three years away from being operational. Hopefully, by then, the economy will have ironed out various issues we are seeing.

You Ain’t Seen Nothing Yet

Lithium Americas is one of my favorite lithium stocks. Nevada is a very favorable mining jurisdiction, and with GM/DoE funding, I have no worries that this project will see competition. Now that is not to say that Mr. Murphy will not delay it some. When it comes to mining, expect if not demand delays.

Lithium prices do need to come up and part of the problem of low lithium prices stems from China dumping lithium in the market, but that is a topic that might be covered in my next article. I do think that price, however, will start to rise with time. Geopolitics aside, I do not think China wants to keep selling at a loss forever.

For the long-term investor Lithium Americas represents the best-of-breed lithium project. That is not to say that others such as Standard Lithium or Century Lithium Corp. (OTCQX:CYDVF) are not equally good. They are, but in different ways and subject to different share prices and stages of progress. Digressions aside, we have been and will continue to increase our position in all lithium companies listed in this article.

The future is changing and lithium will power that future. What we are seeing now is akin to what the microprocessor market looked like in the 1980s. You could see the change coming and those that got in early profited over the next decade. With the expansion potential of Lithium Americas property (and future evolving lithium demand) it makes me think “You ain’t seen nothing yet”.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC, SLI, ELBM, CYDVF, TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Lithium Americas: You Ain’t Seen Nothing Yet appeared first on Up2info.com.

• Lithium Americas is a high-risk, high-reward investment, akin to a call option on lithium demand, especially with EV market growth projections.
• The company aims to finance Thacker Pass mine construction through a $2.26 billion DOE loan and $330 million investment from GM.
• Despite current lithium price weakness, Thacker Pass’s low production costs ensure profitability, with significant upside potential if lithium prices rebound.
• Rio Tinto’s aggressive move into lithium, valuing Arcadium Lithium at double its recent price, underscores the sector’s long-term bullish outlook.

The big merger in the lithium space points to the upside potential in Lithium Americas Corp. (NYSE:LAC). The junior lithium miner isn’t financially impacted by the current price weakness, other than with any financing needed to complete the big U.S. mine. My investment thesis remains ultra-Bullish on the stock, especially after a large diversified miner confirmed the value of lithium.

Call Option On Lithium

Lithium Americas slipped below $3 this year due to the weak lithium prices. The pre-revenue junior miner is still working towards financing the construction of the big Thacker Pass mine in Nevada, with plans for production of up to 80,000/t LCE per annum.

The company has a simple path to paying for the capex by finalizing the $2.26 billion loan from the U.S. Department of Energy under the Advanced Technology Vehicles Manufacturing Loan Program, for which the DOE provided a conditional commitment. After this is complete, Lithium Americas should finalize the second tranche of the General Motors (GM) agreement for $330 million.

The total funds would amount to nearly $2.6 billion to pay substantially all of the remaining Thacker Pass construction project, though these funds include ~$290 million in interest expenses during the construction phase. The miner already has a cash balance of $378 million to continue to the capex plans.

Lithium Americas offers a huge advantage to GM with the domestic lithium supply of 40,000 tpa from Phase 1 sufficient to supply 800K EVs. The IRA-compliant lithium will provide up to $7,500 in consumer tax credits for EVs. Of course, the rules and regulations by 2027/28 production could alter the attractiveness of a domestic supplier.

Either way, Lithium Americas still estimates a production cost of $7K/t helping ensure the lithium production is a low-cost source. Even after lithium prices have plunged to $11K/t, the Thacker Pass production would still be highly profitable.

Global EV demand still remains strong, led by China with 31% growth in the 1H’24 to reach 4.4 million EVs sold. The latest data has global EV sales reaching 1.4 million vehicles per month, up 16% YoY in June.

Lithium Americas is primarily focused on U.S. EV sales, and the North American market has been weak. Total EV sales in this region were only up 12% YoY to 836K vehicles.

The key demand equation involves lithium supply failing to keep up with demand, with a goal for 60% of vehicles sales being EVs in 2030. Under this scenario, Lithium supply fails to keep up with demand by around 2027/28 depending on new mines coming online, just about when Lithium Americas expects to open Phase 1 of Thacker Pass mine.

Sub-$3, the stock quickly becomes like a call option on lithium demand. As with any junior miner, the stock is high risk due to the construction hiccups and uncertainty about the mineral demand. If lithium surges again, an investor will own a stock that trades at multiples of the current price, similar to a call option.

Big Arcadium Lithium Deal

While lithium prices were down in the dumps, Rio Tinto (RIO) showed up to Arcadium Lithium (ALTM) with a big offer. Rio offered a deal that valued the lithium miner at $5.85 per share, equivalent to double the initial October price.

Both Lithium Americas and Arcadium Lithium had stock prices trade towards the low $2s at the lows in early September. LAC has only rebounded to right below $3 versus Arcadium Lithium, rallying to $5.55 on the deal.

The Thacker Pass feasibility study came back to a $1.1 billion adjusted EBITDA estimate for the Phase 1 project based on $36,000/t price for LCE. Lithium America would have an after-tax NPV of $5.7 billion for a stock currently trading at a market cap of $580 million for 10x upside.

The investment story has a lot of unknowns with questionable long-term EV demand, especially in the U.S. Not to mention, Lithium Americas still has to secure all of the funding and finish constructing of the mine while a short report questioned the mining process, amongst other stuff.

Rio Tinto is a diversified miner with a market value topping $110 billion and experience in the sector, with struggles to build the largest European lithium mine in Serbia. The company aggressively bought into the lithium space in a bullish long-term sign and an investor can follow the mining giant into Lithium Americas at a still beaten down price, though with higher risk.

Takeaway

The key investor takeaway is that Lithium Americas is like a call option on the lithium demand story. For an investor that believes in the world moving to EVs, the stock is a near no-brainer bargain here. Ultimately, though, risk exists for the complete loss of capital due to questions on funding and future lithium demand.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LAC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Lithium Americas suffered a severe stock price decline after the company split. Lithium Americas Argentina stock declined far less, due to its already existing production.
• The volatile lithium market may have reached the bottom or may be close to it, with a potentially equally dramatic price spike potentially on the way.
• A lithium market turnaround, coupled with geopolitical trends that put a premium on domestic self-sufficiency, may combine to coincide with Lithium Americas commencement of mined lithium production. Its stock could outperform peers.

Investment thesis: After the stock split event that partitioned the old Lithium Americas into the new US-based Lithium Americas (NYSE:LAC) and Lithium Americas Argentina (LAAC), both companies saw a dramatic decline in their share price, in part due to the broader lithium miner selloff. Lithium Americas however is the stock that suffered by far the largest decline. It is a pre-production company with the earliest revenue inflow set to happen in 2027. Before then, it has significant capital spending needs that must be covered. Having said all that, much of it is already priced into its current stock price. What is not priced in is the prospect of a lithium market rebound as well as the company’s unique position as a US-based miner, with no geopolitical risk exposure. I had a small position in the pre-split company, and now I have a small position in both companies post-split. Now that the post-split period is over, I expect Lithium Americas to be the stronger long-term performer, which is why I decided to add to my modest position.

Lithium Americas preparing for the mine construction phase.

Given that Lithium Americas is a pre-production miner, there is very little that we can discuss regarding revenues, profitability prospects, and other usual metrics that tend to be of interest when kicking the tires on a potential investment opportunity. All we can do for now in terms of examining its financial results is to ascertain how prepared it is to undertake the task ahead of reaching the production phase.

Lithium Americas entered into an exclusive supply agreement with GM (GM) last year, which brings it a valuable infusion of $650 million. In addition, Lithium Americas reported several government support initiatives in its latest quarterly report. The Department of Energy is offering it a conditional commitment for a $2.26 billion loan in the first half of this year. The company also received an $11.8 million grant from the Department of Defense in August of this year. While the road toward the production phase is long, this company is seeing a lot of external support, which has the potential to spare investors from shouldering the burden of stock dilution events.

Once phase one of the Thacker Pass project reaches full production, it will yield 40 ktpa of lithium carbonate/year, which at current prices, will result in about $400 million/year in revenues at current spot price levels. It should be noted that the record-high spot price for lithium carbonate was about eight times higher. If we return to a similar lithium price level in the foreseeable future, revenues, and profits could potentially come in much higher. A lot is riding on the volatile lithium market.

The lithium market will continue to be volatile, with the current price downswing probably giving way to a price spike.

Aside from the pre-production status of Lithium Americas once it was split away from the Argentinian segment of the business, which does have ongoing production, the dramatic decline in lithium prices served as a double hit for the company.

I am not certain whether we will reach the old all-time high price for lithium carbonate again within a timeframe of years or even decades. One thing that I am certain of is that with both supply and demand growing at exponential rates, the inevitable outcome will be a great deal of price volatility, as the industry will be unable to maintain some sort of steady supply/demand balance.

There has been a great deal of talk about a slowdown in EV sales, with signs of weakening demand. Sales growth is nevertheless continuing, with China leading the way.

While it is true that two of the three major EV markets are stagnant, this is not the case with China. We should also pay attention to the rest of the world’s market shown in grey on the chart, where most of the world’s population lives. There has been a visible increase in EV demand from a low base so far this decade. I believe there are factors aside from climate change that are likely to drive EV sales higher throughout the world in the coming years. With EV sales likely to surprise to the upside, we will probably see a lithium price spike at some point in the second half of the decade, perhaps just in time for Lithium Americas to start production.

Signs of global crude oil supplies stagnating may lead to government measures as well as market forces that will favor EV sales growth.

There are some barriers to the mass-market adoption of EVs. As I have been writing for many years now, with some articles dedicated to the subject, the price/range relationship changes the very concept of what it means to have a regular versus a luxury vehicle. For instance, assuming respect for speed limits and with all else held equal, a person driving any moderately-priced sedan is likely to cover the same distance in a day of driving as someone driving a six-figure-priced luxury car. It is not the case with EVs, since cheaper EVs tend to have less driving range than EVs priced in the luxury vehicle price range.

While EVs are facing significant hurdles to penetrating the middle-class market, it may be the case nevertheless, that most consumers, including those who might not consider an EV currently will be forced to take it under consideration, whether it will be due to government restrictions on conventional cars, subsidies for EVs, or perhaps because the cost of gasoline will make EV more attractive.

The global monthly crude oil production record was set in November 2018 at 84.6 mb/d. It is currently down to 81.1 mb/d as of June of this year. It is important to understand that part of the reason why production is down so sharply from the monthly record set in the fall of 2018 is because of the OPEC + reductions in output. Having said that, even if OPEC + members were to redeploy their production capacity currently, I have some doubts whether we would see new record highs on a sustained basis. While on paper, these countries may have almost twice as much spare capacity on hand than the roughly 3.5 mb/d gap between current production and the 2018 monthly record, in reality, I don’t believe that they could come close to helping the world surpass the 2018 production record.

My view on the global oil supply situation is that in late 2018 we either reached a long-term plateau in production, or perhaps we may have even reached the point of permanent global production decline. Regardless, it provides an additional stimulus to global EV sales.

Investment implications:

As the lithium spot price decline started at the end of 2022, I started looking at lithium miners as a long-term bet, with the belief that the EV sales growth trend will continue, despite some temporary signs of stagnation in certain markets. Thus I built a sizable position in lithium miners, with Albemarle (ALB) and SQM (SQM) making up by far the largest portion of it. I built a small position in Lithium Americas before the split, and I did not move to increase my position in either of the two new companies, until recently.

Though Lithium Americas Argentina performed far better comparatively since the split, on the back of it being a producing miner, Lithium Americas now has a more positive profile in my view. Its pre-production status has been baked into its valuation, while its advantageous geopolitical situation, being located in the United States is arguably yet to be fully appreciated. Most lithium producers are currently undervalued in my view, given that we are still operating under the assumption that the crude oil market will be in a constant supply glut situation, based on what increasingly seems like flawed supply/demand projections.

• Risks to my thesis.

The main company-specific risk I see with Lithium Americas is what is typically to be expected with a pre-production mining company. It seems to have enough external support to reach the stage of production, which is one less thing to worry about. At the same time, the company may stumble in terms of project execution. Environmentally driven legal or political challenges to the project could always be an issue. Once production will commence, there is always the risk that it will simply be unprofitable. Higher wages in the US and arguably stricter environmental and other regulations can easily eat into profit margins and make mining operations unprofitable relative to similar projects in other parts of the world.

The main external risk is that I am wrong about the continued growth in global EV sales. There is a potential scenario, where oil prices stay low, governments give up on more assertive measures on transitioning to EVs, while EVs do not necessarily provide the same utility to middle-class consumers as an ICE vehicle due to the price/range relationship. There are already pressures in the EU to abandon the ICE ban set to enter into force in 2035. EV subsidies and other incentives may start to fade as well. The bullish case for EVs cannot be taken for granted. Lithium miners could potentially face years or even a permanent stagnation in demand, even as they are planning to aggressively increase production in coming years, under the assumption that demand will be there.

• Lithium Americas stock may be a bargain, despite risk factors.

There is no denying a high degree of uncertainty within the lithium mining space because supply and demand have both increased exponentially in the past decade. Any disruption in demand growth will likely hit miners very hard. We are going through such a phase right now, with EV demand growth struggling in the Western Markets, with only China continuing to show impressive growth. If one believes that the slowdown in demand growth in North America & Europe is only temporary and EV sales will also pick up in other markets around the world, then the current steep decline in lithium prices is the best time to invest in lithium miners, which I have done starting last year and this year as well.

The bulk of my position in the lithium mining industry will continue to be Albemarle and SQM, given that both are well-established miners, which arguably lessens the company-specific risks associated with investing in this sector. Lithium Americas does offer a compelling enough investment opportunity in my view, to be worth the risk of investing in a pre-production miner. A combination of mostly external factors, such as prospects for a lithium market rebound as well as the rising premium on domestic self-sufficiency can combine with a well-executed commencement of production within a few years to make this stock an outperformer in the sector.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ALB, SQM, LAC, LAAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Lithium Americas stock is rated a “Buy” with a 24-36 month horizon, driven by oversold levels and Thacker Pass asset potential.
• Macroeconomic headwinds are waning, with global interest rate cuts expected to boost EV sector growth and lithium demand.
• Thacker Pass promises significant cash flow, with fully financed capex and strong offtake agreements, positioning LAC for a substantial rally.
• The potential completion of financing from the U.S. DOE and General Motors by December 2024 is a major stock upside trigger.

Investment Overview

In the last few years, lithium stocks have been a good example of extreme euphoria that’s followed by extreme fear. With accelerated adoption of electric vehicles being the central theme, lithium skyrocketed and so did lithium miners.

However, big investments in lithium mining translated into oversupply. In addition to this, contractionary monetary policies impacted global growth and the EV industry faced growth headwinds. A big meltdown in lithium followed, and lithium stocks have plunged in the last 12 to 18 months.

I strongly believe that the correction in lithium stocks is overdone, and it’s a good time to consider exposure to quality lithium miners. Lithium Americas (NYSE:LAC) (TSX:LAC:CA) is among the best names to consider with an investment horizon of 24 to 36 months.

I initiate Lithium Americas with a “Buy” rating and I believe that the stock is poised for a meaningful rally in the given investment horizon. This thesis focuses on the company’s asset potential and growth financing status. Further, I have discussed the factors that can trigger growth acceleration for the EV industry and potential upside for lithium.

It’s worth noting that Lithium Americas stock has corrected by 58% for year-to-date. I, however, see early signs of the stock bottoming out, with LAC stock remaining largely sideways in the last 2.5 months. In my view, some consolidation is likely at lower levels, followed by a significant rally.

Macroeconomic Headwinds Likely to Wane

Besides the oversupply factor, lithium has plunged as EV adoption has been slower than anticipated. This has impacted the demand for lithium on a relative basis.

One reason for sluggish growth is tight monetary policies and global GDP growth deceleration. The International Energy Agency pointed out in their EV outlook for 2024 that “high interest rates and economic uncertainty” are key risks to EV sales growth.

The good news for the industry is that the world is shifting towards expansionary monetary policies. The Fed has initiated the first rate cut earlier this month, and it’s likely that multiple rate cuts are on the cards in the next 12 months. The European Central bank has also pursued two rate cuts in 2024 to support GDP growth. Additionally, China has unveiled a big monetary stimulus that has already triggered some rally in industrial commodities.

With expansionary monetary policies, it’s likely that loans will get cheaper and will support consumer spending. I must add that a positive impact on GDP growth is unlikely immediately. However, global GDP growth can potentially accelerate in the second half of 2025 or in the first half of 2026. This will be positive for the EV sector and will support demand growth for lithium.

In my view, it does not make sense to wait for demand to pick-up before considering exposure to the broad EV sector. The best time to buy is when sentiments are still significantly negative, and I believe that lithium stocks are deeply oversold.

Lithium Likely to Trend Higher From Oversold Levels

It’s worth noting that lithium prices are down almost 90% from the peak in 2022. I agree that lithium skyrocketing in 2022 was pure euphoria. However, it’s equally true that lithium prices currently reflect extreme panic and I believe that an uptrend is likely.

Of course, I don’t expect the lithium to trade anywhere near 2022 highs. However, a price between $20,000 to $30,000 per metric tonne seems likely in the next 24 to 36 months. This section of the thesis elaborates on the reasons to be positive from current levels.

The first point to note is that investment in lithium mines is not sustainable at current prices. Given the supply glut, some of the major lithium miners globally are scaling-back on their investments. The same is indicated in the table below from S&P Global.

The recent decision by China’s largest battery maker, CATL, to scale-back its lithium operations in Jiangxi triggered positive price-action in lithium stocks.

It’s worth noting that even with the current glut, Benchmark Mineral expects lithium surplus to peak in 2027 with deficits by the end of the decade. This is relevant for Lithium Americas with the Thacker Pass project expected to commence first phase of production in 2027. It’s likely that when production commences, lithium prices will be significantly higher from current levels.

Another important point to note is that geopolitical factors are likely to have an impact on lithium supply. Even with the recent slowdown, U.S. demand for lithium is expected to increase at a CAGR of 29% through 2030.

According to Ashley Zumwalt-Forbes, the U.S. Energy Department’s deputy director for batteries and critical materials, “critical minerals are the oil and gas of our energy future.” To reduce dependence on imports, it’s likely that U.S. will continue to support lithium miners.

Recently, the Biden administration announced “awarding over $3 billion to U.S. companies to boost domestic production of advanced batteries and other materials used for electric vehicles.” The key objective is to reduce China’s dominance in battery production for “EVs and other electronics.”

Lithium Americas is also among the beneficiaries and in March 2024, the company announced a conditional commitment from the U.S. Department of Energy for a $2.26 billion loan. These investment commitments underscore my view that the long-term outlook remains bullish for lithium.

Thacker Pass Asset Potential

The bull thesis for Lithium Americas is based on two factors. First, lithium trending higher from oversold levels. Second, the company’s Thacker Pass asset that promises to be a cash flow machine.

I have already discussed the reasons to be positive on lithium over the long term. The focus of the discussion is now on what the Thacker Pass asset can deliver.

To put things into perspective, Thacker Pass has one of the largest measured and indicated lithium resource in the United States. The project life is 40-years with an after-tax net present value of $5.7 billion. I must add here that Lithium Americas currently trades at a market valuation of $580 million and this is indicative of the potential valuation gap.

I believe that there are two reasons for the deep valuation gap. First, the big meltdown in lithium prices. Second, the fact that the project will start delivering production and cash flows only in 2027 and beyond.

Coming back to the asset potential, and it’s expected that in the first four years, the average annual EBITDA will be $625 million. Further, between year 5 and 40, the average annual EBITDA is estimated at $1.1 billion. These estimates assume that lithium carbonate trades at $24,000 per tonne.

I see this scenario as realistic considering the industry factors discussed. The most important point being that the lithium surplus will peak in 2027 and deficits will return by the end of the decade. With the possibility of $1.1 billion in annual EBITDA, Lithium Americas is indeed a cash flow machine.

There are few more important points to note from a stock upside perspective.

First – Based on the feasibility study, Thacker Pass has a potential cost per tonne of $7,206. Being a low-cost asset, the cash flow potential is significant in a bull-case scenario after 2030 when lithium supply-demand gap widens. I therefore believe that the EBITDA potential beyond 2030 is higher than the current estimate.

Second – Based on revised estimates, the capex for phase one is expected at $2.9 billion. With the potential loan from the U.S. Department of Energy, second tranche of investment by General Motors (GM), and cash in hand, the capex is fully financed.

Third – Lithium Americas has an offtake agreement with General Motors for 100% of Thacker Pass phase one for 15 years. Additionally, GM has the Right of First Offer on Thacker Pass phase two production. The offtake agreement provides clear revenue and cash flow visibility as soon as production commences.

Fourth – The potential loan from the U.S. Department of Energy is at attractive terms. The interest rate will be U.S. Treasury rate with 0% spread. Further, the loan tenor will be 24 years from the first draw. Considering the asset potential, I don’t see concerns related to debt servicing.

Right Time To Buy LAC Stock

The most important question for investors would be why initiate Lithium Americas stock now? What has changed after a significant plunge in LAC stock?

I believe that there are few reasons to be bullish after a deep correction.

First – Interest rate cuts globally will support renewed growth in the global economy and at a lower cost of borrowing, the EV industry is likely to witness deliveries growth acceleration.

Second – After a crash of almost 90% from highs, I expect lithium to consolidate and trend higher. This is likely to be positive for deeply oversold lithium stocks.

Third – Lithium Americas anticipates that most of the capital investment for the first phase ($2.93 billion) will be incurred in 2025 when the project ramps-up to peak construction. If the progress through 2025 is as per the timeline, it’s likely that LAC stock will trend higher.

Fourth – In August 2024, Lithium Americas provided an update on the second tranche of investment by General Motors. According to the press release, the company “continues to work closely with the DOE and expects to close the DOE Loan and additional GM investment by the end of the year.” If the deal with the DOE and GM are closed by December, it’s likely to be a catalyst for a big rally.

Macroeconomic factors are therefore supportive, and Lithium Americas is moving towards construction ramp-up. Once the funds are received, LAC stock is likely to rally.

Concluding Views

From a valuation perspective, the best indicator is the after-tax net present value of $5.7 billion.

The current market valuation of $580 million looks miniscule. Of course, the reason is lithium price meltdown as the after-tax NPV is considering lithium carbonate price at $24,000 per tonne. However, my view is that when production commences in 2027, lithium is likely to be near the prices used to estimate the NPV.

It’s also worth noting that Lithium Americas stock trades at a forward price-to-book value of 0.63, which is lower than the sector median of 2.

I strongly believe that the downside risk to the thesis is limited after a big correction. Besides the reasons outlined, it’s worth noting that 14 analysts have a 12-month median price target of $4.63 for LAC stock. This would imply an upside of 74.5% from current levels.

The most bearish price target is $2.5, which implies a correction of 5.84% from current levels. Therefore, the downside is capped, and the upside potential is significant.

I believe that there is some execution risk at this point. Lithium Americas is betting on closing the financing from the DOE and GM by December. If that’s delayed, the company’s plans to ramp-up construction in 2025 will be impacted. Further, there can be a potential impact on commercialization in 2027. Therefore, the closure of financing is the biggest catalyst in the next few months.

Overall, Lithium Americas stock is a potential value creator with an initial investment horizon of 24 to 36 months. Some exposure can be considered at current levels and it makes sense to increase exposure once the financing deal is completed by December 2024.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Lithium Americas: Right Time To Enter For A Significant Rally appeared first on Up2info.com.

• The Department of Defense awarded Lithium Americas Corp. $11.8 million.
• A Department of Energy loan for over $2 billion is pending.
• If certain conditions are met, General Motors is set to invest $330 million into Thacker Pass.
• Lithium share prices and stocks are in a state of utter and complete despondency. Traders have thrown in the towel; this bodes well for long-term investors.
• EV growth worldwide continues to accelerate.

This will be a rather simplistic article, and you should view it as a general update. Lithium Americas Corp. (NYSE:LAC) and General Motors (GM) were set to sign an agreement potentially for tranche #2 funding via GM by August 16th (after which point either side could pull out of the agreement). This date has passed, and according to LAC, the potential deal has been pushed to the 2nd half of 2024. Let’s engage in some guesswork involving the loan, and then we will look at the general EV market for a long-term view of where things are going. Lithium Americas at $2 and change could be worth your hard-earned money for the patient long-term investor.

What’s Next For Lithium Americas?

We can see below that GM could invest $330 million in LAC, but they require that LAC “secures sufficient funding to complete the development of Phase 1 for Thacker Pass.” Thus, LAC has to close and meet the conditions for the Department of Energy loan, upon which, GM might decide to execute funding of tranche #2. Per the LAC March 31, 2024 MD&A we can see the following (emphasis added):

“Pursuant to the second tranche subscription agreement, GM will purchase common shares of the Company subject to the satisfaction of certain conditions precedent, including the condition that the Company secures sufficient funding to complete the development of Phase 1 for Thacker Pass (the “Funding Condition”). The subscription agreement calls for an aggregate purchase price of up to $330 million, with the number of shares to be determined using a conversion price equal to the lower of (A) the 5-day volume weighted average share price (which is determined as of the date the notice that the Funding Condition has been met) and (B) $17.36 per share. The conditions precedent under the second tranche subscription agreement must be met by August 16, 2024.”

Hence, GM could buy shares in the company at a 5-day average price of the current share price of LAC. Given the market cap is $441 million (at $2.72 USD a share), a cash injection of “up to $330” million could place GM owning a substantial interest in the company (especially if you factor in GM owns a non-controlling percentage of LAC from GM funding tranche #1).

The Department of Energy Loan

Exactly how the DoE loan is set up is murky. We can see the following conditions that LAC has to meet to obtain the loan and presumably trigger GM to invest an additional $330 million into the company (emphasis added).

While this Conditional Commitment represents a significant milestone and demonstrates the DOE’s intent to finance the Project, certain technical, legal and financial conditions, including negotiation of definitive financing documents, must be satisfied before funding of the Loan.

We might also factor in that I doubt LAC ever thought its share price would be $2 and change at this stage in the game. The potential dilution (if they go with equity level financing) could be staggering. Then again the project size (and expansion potential) is staggering. Read our coverage on expansion potential here.

Lithium Americas Might Mimic Standard Lithium

With lithium prices depressed, and lithium companies share prices in a state of despondency, some companies are taking a different approach to funding projects. Recently, Standard Lithium (SLI) entered into a partnership where it sold a 45% stake in two of its three projects via project level financing rather than equity financing. The result was the stock was not diluted.

Given the low market cap of LAC, it could be logical for LAC to mimic Standard Lithium. Now the question is: Will LAC sign GM for project level financing or go with an alternative partner? Meanwhile, we see the Department of Defense is helping push critical mineral independence from China by giving awards to Electra Battery Materials (ELBM) and to Lithium Americas.

Department Of Defense Funds Lithium Americas

While the Department of Energy is potentially funding LAC, Lithium Americas received (through its subsidiary Lithium Nevada) $11.8 million from the Department of Defense (DoD) on August 4th, 2024. This announcement flew under most radars, but it is very intriguing to see various parts of the government supporting LAC and lithium Chinese independence in these difficult times for the lithium sector.

What will the DoD award be used for? Per LAC:

“These upgrades will enable Lithium Nevada to test, demonstrate, accelerate, and scale up its lithium carbonate extraction process and produce commercial-scale levels of battery-grade lithium carbonate.”

This sounds like it will enable LAC to fund additional tests on how to extract lithium from clay more efficiently via LAC’s pilot plant facility. It is also a vote of confidence in Lithium Americas by the Department of Defense. One might surmise they conducted some degree of project due diligence before pushing out an award.

European Demand For Electric Cars Is Growing

Much has been written about the EV and its impending demise. Are the opinions grounded in reality? I would say no. Some of it is just good old-fashioned sensationalism, and some is election related. Something of note to observe, but EV adoption in Europe is increasing (along with China and North America). It is one thing to read about how the overall EV share in Europe is around 19% adoption, but it is another to be able to visualize it by country.

Let’s look at France, for example (click to expand the images).

What does Finland yield?

And the land of Ricola (aka Switzerland)

Now, Norway is a bit of an outlier, as they are so far ahead of the rest of the world in EV, but it might show the shape of things to come.

Denmark.

Ze Germans.

Sweden.

Austria.

Italy.

At 8.3% penetration, Italy is going slow, but it is rising.

European Union.

Lastly, we can see the overall picture if we look at all the European Union.

Geopolitical View of Critical Elements

Geopolitics also comes into play. The USA is restricting semiconductor technology and chemicals to China to keep Chinese dependence upon the semiconductor industry. In response, China is restricting key minerals such as antimony. These economic games are not new, but how the pieces move on the chessboard in response is what we should be concerned with. Hence, I think this gives weight to the DoD funding additional lithium projects (SLI, CYDVF, ALB are but a few) and I think we will see a combination of DoE / GM / or a 3rd party fund Thacker Pass. Thacker Pass was approved during the last part of the Trump Administration and continued during the Biden administration. Too much economically is on the line for it not to be funded from a Federal, State, and geopolitical view point.

Lithium Americas Risk Factors

My risk assessment has not changed. Hence, I am going to borrow my prior Lithium Americas articles risk assessment. Risk can be broken down into a few factors: Company specific risk such as the DOE loan and the GM tranche 2 loan not closing. We could also ponder macro risk factors, such as the general economy continuing to deteriorate under high inflation and high interest rates. This economic hardship and uncertainty must impact EV sales as consumers simply have less income. Another uncertainty hanging over the stock is how will the GM loan impact the stock? Dilution for a massive cash injection of $330 million could occur, but how will the stock react? That is an unknown, and the stock market does not like unknowns.

We also have election unknowns adding murk to the water. On one hand, President Trump did push the critical elements list and Thacker Pass during his tenure. On the other, he is a wild card if anything. I would venture that his business leanings and anti-China stance would put him in a balanced camp of being pro oil while supporting independence from foreign countries dominating lithium production and refining. We will see how the elections play out. It should be interesting.

Presently, we are in the perfect storm that is rattling the lithium market, but these things also have a way of reversing much like the tides of the sea. If we eliminate election uncertainty and somehow manage to improve the macro picture, things might reverse quickly for lithium in general.

Takeaway

I want you to ponder the future, and occasionally when we ponder futures we come up with results that frankly are not optimal (because they represent change). Sometimes the change is good, though. If we ignore the politics behind EV and simply look at the science of energy efficiency, superior acceleration, and reduced noise, I do believe EV is a good change. I also see the long-term geopolitical implications.

The White House (irrespective of who is in charge) is not about to let China continue its lithium dominance and surrender the US automotive industry to cheap Chinese EV imports. Hence, we circle back to where to invest money in lithium to tap into this potential EV future. Lithium Americas is one potential answer among many good companies, but it will take time, and it will require patience.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC, SLI, CYDVF, ELBM either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post What’s Next For Lithium Americas? appeared first on Up2info.com.

• Lithium Americas has faced challenges with construction financing and environmental lawsuits at its Thacker Pass property, while spinning off its Argentina mine as lithium prices collapsed.
• However, the Nevada-focused entity remains appealing for investment, with its low-interest DOE loan approval and GM investment providing the necessary capital to get U.S. lithium production going by late 2027.
• With a 40-year mine life and very low net mining cost projection for Thacker Pass, LAC shares are likely worth significantly more than the current quote to long-term owners.
• Technical momentum indicators have been bottoming since June, which could point to a reversal in the share price soon.

I mentioned Lithium Americas Corp. (NYSE:LAC) all the way back in 2021 here, as a play on quickly growing electric vehicle [EV] battery demand. Well, the whole investment story three years ago of owning a joint-venture lithium mine in Argentina under construction nearing completion (Cauchari-Olaroz) and another incredible development asset in Nevada (Thacker Pass) morphed into an unusual business saga, with a number of twists and turns.

Several changes in possible financing options for the U.S. property, a President Biden-pushed green energy U.S. Department of Energy [DOE] loan incentive, General Motors (GM) wanting a piece of the action to lock-in lithium supplies, environmental lawsuit delays, and eventually a spinoff of the Argentina mine have made analysis of the investment opportunity quite tricky. Then, the price of lithium collapsed almost -90% from its late 2022 high, sliding from US$84,000 to $10,400 per metric ton in August 2024.

So, where do I stand on the two separate entities as investment options? The Lithium Americas Argentina Corp. (LAAC) name is too risky for my tastes given the political chaos in this South American country.

For sure, there are lots of balls to juggle for analysts and investors regarding the true worth of the remaining Nevada-focused entity, owning a major mine in the early stages of being built.

Yet, the Nevada property is very appealing to me, assuming lithium prices recover strongly in 2025-26. Believe it or not, after an expected and agreed to round of share issuance to General Motors later this year, the adjusted equity market cap of $900 million at $2.72 per share has the potential to rise above $10 billion over the coming 3-5 years. How many other investment choices have similar upside potential of 10x your money in today’s overvalued Wall Street setup? (Answer: Not Many)

Mine Development

According to management a few weeks ago, the $2.93 billion -Phase 1- mine construction plan is close to receiving the go ahead.

According to the Q2 2024 press release,

“Our team is focused on closing the DOE Loan and GM investment to move Thacker Pass into major construction by the end of the year,” said Jonathan Evans, President and Chief Executive Officer of Lithium Americas. “We have been working closely with the U.S. DOE and GM, while concurrently continuing to de-risk execution readiness by advancing detailed engineering, project planning and procurement packages. Earthworks and site preparations are complete, and Thacker Pass is ready for the next phase of construction once we make the final investment decision later this year.”

The company held $375 million cash vs. $27 million in total liabilities at the end of June, as a development organization. A $2.26 billion DOE loan financed at prevailing Treasury rates (likely in the 4% to 5% range for annual interest expense) is due for approval by the end of 2024. And, General Motors agreed to a second funding round of $330 million through new LAC share issuance (in January 2023), once the DOE loan became reality.

For more specifics about mine preparation progress, again from the Q2 press release,

On March 12, 2024, the Company received from the U.S. Department of Energy (“DOE”) a conditional commitment for a $2.26 billion loan (the “DOE Loan”) under the Advanced Technology Vehicles Manufacturing Loan Program, to fund eligible construction costs of the processing facilities at Thacker Pass to produce an initial 40,000 tonnes per annum of battery grade lithium carbonate (“Phase 1”). The Company continues to work closely with the DOE and expects to close the DOE Loan in the second half of 2024 (“2H24”).

Site preparation for major earthworks has been completed, and Thacker Pass is prepared for the commencement of major construction following issuing full notice to proceed (“FNTP”), expected in 2H24 following closing of the DOE Loan.

The Company continues to focus on increasing the level of detailed engineering, currently over 30% design complete, alongside advancing procurement and execution planning. Throughout Q2 2024, procurement packages and executable purchase orders were put in place in preparation for FNTP.

During Q2 2024, the Company advanced site preparation for the Workforce Hub (“WFH”), a planned all-inclusive housing facility for construction workers. The WFH will be built to align with Thacker Pass Phase 1 construction schedule.

In August 2024, the Company received a $11.8 million grant from the U.S. Department of Defense to support an upgrade of the local power infrastructure and to help build a transloading facility.

During the three months ended June 30, 2024, $27.7 million of construction capital costs and other project-related costs were capitalized…

In April 2024, the Company completed an underwritten public offering (the “Offering”) which, together with the DOE Loan, satisfies the funding condition to closing General Motors Holdings LLC (“GM”) second tranche investment (“Tranche 2 Investment”). The DOE Loan and the GM Tranche 2 Investment are expected to close in the second half of the year, and together, with the cash on hand, are expected to fund Thacker Pass Phase 1 construction capital expenditures…

GM has exclusive access to 100% of the lithium production from Phase 1 for up to 15 years and has a right of first offer on Phase 2 production.

How this all plays out, after several years of construction ahead (targeted for mechanical completion by the end of 2027), and depending on lithium prices by the time actual production begins, Lithium Americas shares could be nearly worthless to potentially valued at $10+ billion.

Thacker Pass is projected to turn into a world-class lithium carbonate mine producing 40,000 tonnes annually in Phase 1 with a ramp in Phase 2 to 80,000 over time, using an estimated mine life of 40+ years. As it is developed, Thacker Pass may become the premier strategic lithium reserve asset for the U.S. In terms of measured & indicated resources, it is the largest lithium reserve in all of North America. That’s the main bullish argument to research further.

Some additional background and history on the Thacker Pass development is outlined below, available in the August 2024 Investor Presentation.

Back of the Envelope Math

If the targeted GM share issuance were to happen tomorrow (under the terms laid out in 2023), I am coming up with a total equity market cap of $900 million at $2.72 per share. In a best-case scenario (with little new share dilution after this year), LAC could have around $1.1 billion in accounting book value against $2.4 billion in debt (mostly low interest-rate DOE loans) by the time production starts in late 2027.

At the depressed US$10,400 per tonne price for lithium today, Thacker Pass could still be exceptionally profitable, assuming Technical Report forecasts prove correct.

$10,400 x 40,000 metric tons annually (Phase 1) works out to $416 million in revenues. Using a “net” cash/royalty/tax-credit cost structure around $6,500 per tonne for production, then adding $115 million in interest costs on $2.3 billion in debt (at 5% interest rates), I am calculating $45 million in pre-tax profits per year as a final destination during 2028-29. But that’s assuming the currently very depressed lithium price remains.

For example, if lithium springs back to $20,000 per tonne, future sales would be roughly $800 million per year, generating pre-tax profits of approximately $525 million, all other variables remaining the same.

If you want to dream a little about a serious lithium shortage globally reappearing like 2021-22, with metals pricing returning to $50,000 per tonne – Lithium Americas could be producing around $2 billion for revenues annually, with $1.62 billion in pre-tax income by late 2028.

So, it’s easy to understand LAC now holds considerable “leverage” to any lithium price advance for owners at $2.72 per share.

Technical Momentum Reversal?

Looking forward to the good news events of DOE loan disbursement, receiving the GM capital, and moving into heavy construction buildout during 2025, now may be the perfect moment to acquire shares on the cheap.

The abnormal/oversized turnover in share ownership since March on high trading volume indicates to me serious long-term investors have been taking share supply from shorter-term traders and existing owners. The vast majority of retail investors have been giving up on LAC as lithium prices cratered.

Yet, technical momentum has actually been bottoming since June, after the clearly oversold readings of May were reached. Getting above the important 50-day moving average this past week for the first time since April could be the initial bullish signal a price reversal is ready to begin.

I have drawn a 12-month chart of daily price and volume trading activity below. Circled in blue are the bottoms in On Balance Volume, the Accumulation/Distribution Line, and the 20-day Chaikin Money Flow indicator. The bullish chart readout is early August’s price drop to multi-year lows was not “confirmed” by many momentum indicators. So, if selling pressure has been exhausted and company-specific good news on the mine construction front is next, a page-turning inflection point of sorts could be close at hand.

I know the seeds of a turnaround are hard to see today, but that’s usually how individual company price bottoms look after a wicked decline, especially in a cyclical sector of the market.

Final Thoughts

What could go wrong with my bullish thesis?

Further dilution efforts could appear through new share issuance to fund any cost overruns constructing the mine and/or pay for day-to-day management in the meantime. Unfortunately, more dilution for existing LAC owners would act to reduce potential upside estimates for the share quote.

Political risk is another consideration. If former President Donald Trump wins the November election, he has promised to eliminate (or at least reduce) green energy government incentive programs, especially in the EV sector. Given demand for EVs in America is downgraded, lithium prices could stay lower for longer.

My hope is the DOE loan is approved before any January inauguration of the Republican candidate. For sure, the bull case for Lithium Americas would be improved if the Democratic candidate Vice-President Kamala Harris wins. Such a victory would likely be considered great news for LAC’s future, as new tax-breaks and direct incentives could be on the way for the renewable energy sector.

Questions about the EV growth curve have also appeared in 2024. Why? Changing consumer preferences in the ICE vs. EV auto battle, less confidence in the safety of battery-powered vehicles (lithium-ion fires as one example), doubts about the creation of fully autonomous driving capabilities (which are a major selling point for future EV adoption), and a weakening global economy this year have all worked together to downgrade demand (temporarily if you are a bull) for the new-age invention of lithium-necessary vehicles.

Without doubt, Lithium Americas is a highly speculative investment security. Don’t kid yourself. Enough could go wrong with lithium demand and its pricing future to hurt the chances of a big reversal in the share quote.

In summary, I feel the upside potential is hard to pass up, especially after the monster price slide in 2024 has forced weak-hand shareholders to sell and move on. Strong-hand holders like GM (with ownership potentially as high as 40% of outstanding shares after the 2024 capital raise), insiders, and long-term thinkers are replacing the hot-money crowd of 2021-22.

Looking forward, the likely positive news events of receiving final financing and moving into full-scale construction at Thacker Pass will force analysts and investors to reevaluate LAC’s future of profitable production several years down the road. Again, the most supportive investor news would be a sustainable rebound in lithium prices, alongside valuations of the company’s enormous reserves.

I now rate shares a Buy under $3 per share and own a small/growing position in recent weeks. In my mind, the chances of LAC’s stock price falling to zero are about the same as price leaping to $30 over the next 3-5 years. If this is true, statistically speaking, the odds are nicely tilted in favor of Lithium Americas ownership. A reversal in price to $5 next year and $10 by 2028 works out to the potential for compounded gains of +35% to +50% annually, albeit through taking on higher-than-normal risk.

Another possible catalyst for oversized investment gains during 2025-26 could come from a General Motors decision to acquire all of Lithium Americas. If the company can achieve 35% to 40% ownership of the company later this year, while lithium prices rebound strongly sooner rather than later, it may prove more economical for America’s largest automaker (17% market share) to completely own LAC’s low-cost U.S. lithium supply for its EVs.

Thanks for reading. Please consider this article a first step in your due diligence process. Consulting with a registered and experienced investment advisor is recommended before making any trade.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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