CA - Lithium Americas: Keep Both Stocks After Split

2023-10-08 10:00:00 ET

Summary

• Lithium Americas Corp. has split into two companies: Lithium Argentina and a new Lithium Americas Corp.
• The split allows for U.S. interests to invest in Lithium Americas and Chinese investments to focus on the operating lithium mine in Argentina.
• Lithium Argentina is more de-risked with an operating lithium mine, making it the cheaper and lower-risk option, but both stocks are cheap here.

The lithium market has cooled off lately, leading to Lithium Americas ( LAC ) trading at the lows heading into the company split into two companies. Shareholders now have the option of owning a lithium miner in Argentina and lithium development stage company in the U.S., both intent on playing the surging demand for lithium-ion batteries for EVs. My investment thesis is ultra Bullish on both stocks, though the Argentina stock is likely the cheapest to own and the lowest risk.

Corporate Split

Lithium Americas Corp. split into Lithium Argentina ( LAAC ) and a new Lithium Americas Corp. under the old ticker of LAC effective October 3. The stocks started trading under the new ticker symbols on October 4.

The move splits the lithium miner into a company with an operating mine in Argentina just now ramping up production and a company in the U.S. with a mine under construction in Nevada. The companies will have the same 160 million shares outstanding with the following financial resources.

Shareholders got one share of each company. LAC traded just over $16 prior to the split, and the combined stocks now trade as follows:

• LAC - $11.49
• LAAC - $6.60
• Total - $18.09

In total, the stocks are now up from the pre-split levels, though Lithium Americas traded wildly to close the week. Oddly, the market has shifted the majority of the value into the new Lithium Americas and away from the operating mine in Lithium Argentina.

A prime reason for the split was to separate the US business to allow both a government DOE loan to occur and for General Motors ( GM ) to complete an additional investment. On top of that, the Chinese investment shifted to the Argentina business to avoid any disruptions with the US government restrictions on the DOE loan.

Since shareholders obtained 1 share of each business in the split, with companies have an equal 160 million shares outstanding. Lithium Americas has a market cap of $1.84 billion and Lithium Argentina is down at only $1.06 billion.

Investors clearly are attracted to the Lithium Americas, Thacker Pass investment. Thacker Pass has 16.1 million tonnes of LCE with an estimated after-tax NPV of $5.7 billion with a stock only valued at $1.84 billion here.

By 2030, the company plans on producing 80 ktpa LCE following the completion of both Phase 1 and 2. The estimated annual EBITDA could reach $2 billion on LCE trading at $36,000/t, a price 50% above the value used for the NPV.

The main issue with the US company is the need for considerable investments to build the mine over the next few years. The company won't start lithium production until 2026 while tranche 2 of the GM investment of $330 million will dilute shareholders.

Ignored Argentina

Lithium Argentina produced the first lithium in June 2023 with a goal for 5,000 tonnes of lithium carbonate this year. The Cauchari-Olaroz mine in Argentina has a goal for reaching the targeted capacity goal of 40 ktpa of battery-quality lithium carbonate by mid-2024.

The business appears far more de-risked with a mine up and running and the company obtaining 49% of the output. The natural negative is that the mine is over 50% owned by Ganfeng Lithium in China, with a 51% Stage 1 production entitlement.

The business has other investment opportunities, including the expansion of the Cauchari-Olaroz mine to at least 60 ktpa. The company has larger investment positions in the Pastos Grandes Project (100%) and Sal de la Puna Project (65%) providing more production upside on future projects.

As listed above, the stock only has a market cap of $1 billion, with analyst revenues targets of $300 million in 2024 to $400 million by 2026. The revenue potential would appear far higher on 20 ktpa based on current lithium prices.

The company will be highly profitable in 2024 and the positive cash flows should help fund Stage 2 of expansion and any future development projects, like the Pastos Grandes Project, with an expected construction decision expected here in Q4 following the stock split.

Takeaway

The key investor takeaway is that both Lithium Americas and Lithium Argentina appear very attractively priced after the stock splits. Lithium Argentina is the cheaper option, more de-risked with an operating lithium mine in Argentina now. In reality, investors should probably continue owning both stocks to spread the risk around in a risky investment area such as lithium mining.

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