Business Strategy & Outlook

Lithium Americas aims to become a low-cost pure-play lithium producer. The company has no current lithium sales volumes but is developing three resources that should eventually enter production, with the first project to enter production by the end of 2022. Cauchari-Olaroz and Pastos Grandes are brine resources located in northwestern Argentina. Thacker Pass is the company’s clay resource in the U.S. state of Nevada. As electric vehicle adoption increases, the maintained double-digit annual growth for lithium demand. Lithium Americas should benefit as there should be more than enough demand for company’s three resources to enter production and expand capacity over time.

At Cauchari-Olaroz, Lithium Americas owns 44.8% of the project, while Ganfeng, one of the world’s largest lithium producers, owns 46.7%. The remaining 8.5% stake is owned by JEMSE, an Argentina state-owned mining company. Once Cauchari-Olaroz enters production and begins ramping up volumes, the project should have a similar cost position as other Argentinean brines, such as the resources of narrow-moat Livent and Orocobre. The project plans to bring an initial 40,000 metric tons of capacity later this year, with plans for additional expansions. LAC owns 100% of the Pastos Grandes project. Located close to the Cauchari-Olaroz project in Argentina, Pastos Grandes is currently under development. The project aims to produce 24,000 metric tons per year. LAC also owns 100% of the Thacker Pass resource. The project faces legal opposition from environmental groups that could cause delays, however, the project will eventually enter production. Thacker Pass would be the first clay-based lithium resource to enter production globally. Currently, all lithium is produced from either brine (primarily in South America) or hard rock mining that produces spodumene (primarily in Australia) Thacker Pass plans on bringing on an initial 40,000 metric tons of capacity, with additional expansion plans.

Financial Strengths

Lithium Americas is in a solid financial position. As of March 31, Lithium Americas had $290 million in total debt and $492 million in cash on its balance sheet. While debt levels remain low, Lithium Americas will need to contribute nearly $67 million for its share of capital expenditures to finish construction of the Cauchari-Olaroz project. However, the company has sufficient cash to manage these payments. Lithium Americas can also access $75 million in undrawn cash from its loan and credit facilities. LAC has refinanced its construction facility into convertible long-term debt. With a conversion rate of $47.10 per share, which is slightly above the value estimate, the financing term as favorable for existing shareholders. As Cauchari-Olaroz enters production in 2022, the project should begin to generate positive cash flows in subsequent years, allowing the project to fund capacity expansions. LAC should also be able to use some of its share of profits to invest in the construction of the Thacker Pass project. Management is exploring bringing in a partner on the project and applied to secure low-cost debt financing from the U.S. Department of Energy for 50% to 60% of the Phase 1 capital expenditures. If the company decides to remain the sole owner of the project and secures low-cost debt, it could be funded through equity issuances. As LAC progresses on developing the Pastos Grandes project, the company will likely have to issue additional equity or debt, or find a partner, in order to fund construction. In February, LAC announced the company is considering a separation into two companies, with assets divided based on geography. One company would hold the Argentina-based Cauchari-Olaroz and Pastos Grandes assets. The other company would hold the U.S.-based Thacker Pass assets. 

Bulls Say

• Through the ownership of three large lithium resources, Lithium Americas should be able to enter the lithium industry and become a major producer globally with one of the lowest-cost lithium carbonate resources and one of the largest rock-based resources globally. 

• As a lithium pure play, Lithium Americas is well positioned to increase profits from EV growth through lithium batteries. 

• Lithium prices will remain well above the marginal cost of production through at least the remainder of the decade, leading to excess profits and return on invested capital for Lithium Americas.

Company Description

Lithium Americas is developing three lithium production assets, two brine resources located in northwestern Argentina and a clay resource in Nevada, U.S. While the company has no current lithium production, the first Argentina resource, Cauchari-Olaroz, to enter production in late 2022. The Nevada project, Thacker Pass, to enter production in the middle of the 2020s and the second brine resource, Pastos Grandes, to enter production in the late-2020s. Lithium Americas plans for all three resources to be fully integrated, selling into the lithium chemical market. The company is also exploring separating into two companies, with assets divided by geography, an Argentina company and a U.S. company.

(Source: Morningstar)

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