2023-05-23 16:30:24 ET
Summary
- Lithium Americas Corp. is now full speed ahead on separating the company into 2 leading lithium producers.
- Both companies will have lithium mines under construction, with the Lithium Americas unit obtaining crucial funding by separating from the Lithium Argentina business with Chinese investors.
- Lithium Americas Corp. stock has a market cap of $3.6 billion, amounting to a minimal multiple on future profits.
The lithium sector has hit a road bump in the last few months, but the long-term demand picture is very positive. Lithium Americas Corp. ( LAC ) continues to proceed toward separating its two units in order to fully unlock value of several ongoing construction projects. My investment thesis is ultra Bullish on this lithium stock following the dip by LAC to the recent lows.
Source: Finviz
Upcoming Split
The BoD just approved the split of Lithium Americas Corp. into two leading lithium companies: Lithium Americas and Lithium Argentina. The primary reason for the split is the investment funds for the U.S. lithium mine will be separated from the Chinese investment in the Argentina mine.
General Motors Company ( GM ) plans to invest a second tranche of $330 million solely in the Lithium Americas business. The company will obtain these substantial investments in the Thacker Pass mine in Nevada only by spitting the business into multiple units.
An investor probably will see value unlocked by obtaining investments in both businesses. The Lithium Argentina business is intriguing as the company targets the first lithium production at the Cauchari-Olaroz mine in Argentina in June. The mine should hit 40,000 tpa of battery-quality lithium carbines by Q1'24 along with a couple of other investment projects.
Lithium Americas will focus on the production of the Thacker Pass with Phase 1 construction on going and the future Phase 2 construction with both phases expected to add 40,000 tpa. In addition, the business has investments in Green Technology Metals Limited ( GTMLF ) and Ascend Elements.
Shareholders will vote on the split at the AGM on July 31. The likely approval of the split will lead to a 2H completion of the plan.
Wild Lithium Prices
Over the last year, lithium prices surged and have now collapsed back to mid-2021 prices. The carbonate price is now close to $31K per tonne compared to peak prices above $80K.
A big part of the price volatility is related to slow EV production ramps in China following the reopening. Regardless, new lithium supply is needed to meet demand, with the U.S. only now starting to ramp up production outside of Tesla, Inc. ( TSLA ) and China production set to grow.
The crazy part of the lithium supply story is that up to 79 projects are in the works and needed to reach production in order to avoid structural deficit gaps in the next few years. This level of projects almost ensures a supply gap will exist as a handful of projects will inevitably slip, especially if lithium prices continue falling and capital becomes difficult to obtain during a recession.
As highlighted prior, the Thacker Pass economics are extremely positive, even after the recent dips in lithium carbonate prices. Lithium Americas alone will produce nearly $1 billion in annual EBITDA in the first 4 years at slightly higher lithium prices. Once the company finishes Phase 2 and increases the output to 80,000 tpa, the annual EBITDA targets jump to $2 billion.
The current stock price only has a market value of $3.6 billion. The Thacker Pass profits alone would warrant a far higher stock price, but production won't start until 2026. The Cauchari-Olaroz mine should start producing strong profits for the Lithium Argentina unit highlighting how cheap the stock is with all of the lithium projects underway.
The value in the lithium sector was highlighted with Exxon Mobil Corporation ( XOM ) investing $100 million in a lithium property in Arkansas. Lithium Americas having access to 2 mines in construction phase and another couple of development plans should warrant additional investment.
Takeaway
The key investor takeaway is that Lithium Americas Corp. continues to offer a good investment, especially on weakness. The company is now full speed ahead on multiple production projects that will generate substantial profits. The corporate split should unlock value for Lithium Americas Corp. shareholders.
For further details see:
Lithium Americas: Unlocking Value