CA - Lithium Americas: An Energy Revolution Is Coming

Summary

• Lithium Americas is building lithium mines in Argentina and USA.
• The company is developing the Thacker Pass Lithium Mine, which will be North America's largest lithium project.
• A comprehensive domestic US supply chain for EVs will be critical in the post-pandemic world.

Lithium has fast become the lifeblood of decarbonization as lithium-ion battery cells continue to be the foremost battery chemistry for several green technologies. This ranges from electric vehicle batteries to short-duration utility-scale energy storage for renewables. This has meant significant, nearly insatiable demand for lithium carbonate and a subsequent rush for new lithium mines around the world.

Vancouver-based Lithium Americas ( LAC ) is developing advanced-stage lithium projects in Argentina and the USA. In Argentina, Lithium Americas is nearing construction completion of Cauchari-Olaroz, a 40,000 tonnes per year lithium carbonate brine project. The project is being developed with Ganfeng Lithium ( GNENY ) with capital costs at $741 million. The company is also developing the Thacker Pass lithium mine in Nevada where progress has been materially slowed by multiple lawsuits by environmental and indigenous groups. Management remains confident that the mine will commence construction this year. Phase 1 will see 40,000 tonnes of lithium carbonate per year and with a total capacity of 80,000 tonnes per year in phase 2.

What's also important is the long-term outlook for lithium. EVs and renewable energy storage, its core demand drivers, have fast become critical post-pandemic economic pillars for several national governments. The United States recently signed the gargantuan Inflation Reduction Act into law. This will see an unparalleled fiscal intervention of government into the zero-carbon space with $370 billion being invested over a decade in any such initiative. The impact of the Act will be multifaceted. First, it will see a huge expansion of wind and solar power projects and the subsequent short-duration utility-scale energy storage needed to smooth out the intermittency. It will also extend the tax credit on EVs to maintain US EV demand momentum against a global market that is seeing parabolic EV sales growth. Global sales of EVs reached 6.6 million in 2021 and are forecasted to grow to at least 26.8 million by 2030.

Global lithium demand from EVs is expected to reach 250,000 mt in 2030, rising 120% to 550,000 mt in 2040. By 2050 EVs would cumulatively have demanded 12.5 million mt of lithium.

Lithium's dynamic and fast expanding demand mix has driven prices to record highs with lithium carbonate prices reaching over $70,000/t in China. Whilst prices at these levels are likely unsustainable as new supply comes online, there still exist material bottlenecks to the development of new lithium mines globally. In Serbia, a Rio Tinto ( RTPPF ) proposed lithium mine, which would have become the largest lithium mine in Europe , was cancelled by the Serbian government after environmental protests.

Building North America's Largest Lithium Mine

The Inflation Reduction Act has been criticised as being too intensely inward. For an EV to qualify for the $7,500 tax credit the vehicle must be assembled in the USA with critical minerals in the battery coming from the US or a country with whom the US has a free trade agreement. Whilst the US has trade agreements with Australia and Chile, both significant lithium producers, there likely will be significant interest in home-sourced lithium for companies looking to promote a more whole Made in USA brand.

The Thacker Pass lithium mine represents a unique bullish investment story for Lithium Americas outside of its projects in Argentina. The mine is 100% owned by the company, albeit with no offtake rights committed as of yet. All permits to commence construction have been achieved with management now just waiting on the final decision of a legal case. Early works are expected to begin this year if the decision goes in their favour.

The company holds cash and equivalents of $440 million which provides enough liquidity for the development of their mines up to the realization of initial revenues.

Domestically Sourced Lithium Will Be An Important Feature For The Coming Geo-Political Quagmire

Investors might have been thrown into flux when a report came out around China and Russia looking to promote a new world order . This will likely see greater protectionism and a greater probability of disruptions to global supply chains. This would be in addition to what we've seen since the pandemic.

The Thacker Pass mine would be critical to US government objectives and help shield the US transition to low carbon technologies and lessen single sources of failure as we saw with the rejected Chilean constitution . Lithium forms a strategic geopolitical resource which makes Lithium Americas a potential portfolio addition on a positive court decision.

Decarbonization forms a critical tenet of US government policy. Hence, a well-designed strategy to manage the risks of the transition to zero-emission transport will likely require a fully comprehensive domestic supply chain. At a minimum, diversification beyond the current global producers by injecting more supply into the global lithium narrative through new domestic mines should be part of this strategy.

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