Summary
- Lithium Americas Corp. begins construction at the Thacker Pass mine after years of lawsuits.
- The mine has an NPV valued above the current market cap of the stock using lithium prices far below current market prices.
- The Lithium Americas Corp. stock dip due to Chinese EV demand fears is a gift to long-term investors.
In no huge surprise, Lithium Americas Corp. ( LAC ) appears to have pushed through all of their legal issues preventing the mining of lithium in Nevada. Lithium is a hot commodity due the use in batteries made for electric vehicles ("EVs"), and the courts never appeared supportive of the plaintiffs' claims attempting to block the mining in the U.S. My investment thesis remains ultra-Bullish on the lithium stock due to surging demand and a general lack of supply despite some general market weakness recently.
Hopefully Last Legal Battle
Back on February 6, U.S. District Judge Miranda Du upheld the federal government's decision to approve the Thacker Pass lithium mine. Environmental groups and tribal leaders had sued to block the mine, suggesting the permitting process for the Thacker Pass by the Bureau of Land Management wasn't conducted "thoroughly and responsibly."
The environmental groups and tribal leaders attempted a last-ditch effort to block the start of construction on the mine, but the emergency motion was denied by an appeals court. Lithium Americas announced the starting of construction on the Thacker Pass lithium project.
The environmentalist and tribal leaders brought the case to stop construction of the open pit lithium mine to protect 5,000 acres of public land with BLM-designated Priority habitat for the imperiled sage-grouse. In addition, the plaintiffs suggested group members would be denied the highly scenic and wildlife-rich area.
The Thacker Pass project targets producing 80,000 tonnes per annum of battery-quality lithium carbonate. The initial Phase 1 will produce 40,000 tpa around the 2H'26, with a follow-on Phase 2 to double the size of the lithium output.
Big GM Investment
One of the strongest signs that Lithium Americas was likely to win the court case against attempts to block the Thacker Pass mine was the signing of a large investment from General Motors Company ( GM ). The large auto manufacturer agreed to an equity investment of up to $650 million , consisting of the following terms:
- $320 million first tranche investment for common shares representing 9.999% of Lithium Americas before separation; and
- $330 million second tranche investment, contemplated to be invested in the Company’s U.S. business following the separation of its U.S. and Argentine businesses (the “Separation”).
- After the first tranche investment, GM will receive exclusive access to Phase 1 production through a binding supply agreement and a Right of First Offer (“ROFO”) on Phase 2 production.
In essence, GM is funding the Phase 1 project via a nearly 10% position in Lithium Americas to gain access to Phase 1 supply. The auto OEM needs lithium to meet battery demand from planned ramped-up EV production.
Lithium Americas has estimated Phase 1 capital costs of $2.27 billion, so the company is giving away a large portion of the business for only about 15% of the construction costs. The tranche 1 investment entails GM acquiring 15 million shares at a price of just $21.34 per share.
At the end of January when the deal was announced, the stock was trading much closer to the deal price, but Lithium Americas had spent the majority of 2022 trading at higher prices. GM got a very favorable deal from Lithium Americas to gain access to the Thacker Pass output.
Regardless of the GM investment price, the Thacker Pass project has an NPV of $5.7 billion based on $24,000/t for LCE. Due to the supply concerns and soaring demand, lithium currently trades far above this base price even with the fears of slowing demand in China.
Analysts are projecting lithium falls to 300,000 yuan in China, which equates to somewhere around $43,000/t. Even the current weak fears place LCE prices above the targets used by Lithium Americas in valuing the Thacker Pass project.
The project will produce $625 million in annual EBITDA though year 4 and over $1.1 billion the remaining 36 years of useful life based on $24,000 lithium prices. Naturally, the average EBITDA soars at higher prices.
Lithium Americas Corp. stock has a market cap of only $3.5 billion, while the Thacker Pass project alone will produce enough EBITDA to warrant a higher valuation with a true NPV likely double the current market cap. In addition, the real story is the Cauchari-Olaroz mine in Argentina nearly at startup.
Takeaway
The key investor takeaway is that Lithium Americas Corp. is too cheap down near $20. The company is moving forward with the Thacker Pass mine construction with the stock trading at a valuation below the NPV of this mine. This suggests the whole International operations aren't currently given a value, offering a great deal for investors.
For further details see:
Lithium Americas: Let The Digging Begin