LAC: The United States’ Strategy To Reduce Dependence On Chinese Lithium

Introduction

Lithium Americas was started in 2007 with headquarters in Toronto, Canada. Lithium Americas since 2007 has operated primarily in Jujuy, Argentina. The company has most recently separated into two separate entities. This was done after the company acquired grants to start construction on a lithium mining operation in Thacker Pass, Arizona. Thacker Pass will provide them with the longevity they need as they want to provide Lithium for the new electric vehicle switch. Lithium Americas under the ticker LAC is responsible for Thacker Pass, Arizona and their Argentina business is under the ticker LAAC.

Market

In the past 5 years Lithium has been one of the fastest growing metals in demand. The switch to EVs across the US has been off to a slow start, considering President Biden and Kamala Harris plan the end of the purchase of gas powered vehicles by 2035. The upcoming presidential election is also a key consideration in this date being set. Luckily, both President Biden’s team and Donald Trumps agree on furthering restrictions of imports from China, which includes Lithium. As of May 2024 the percent of electric cars sold in the U.S. (Lithium Americas primary market) was at 6.8% and worldwide this rate was at 14%. Considering these numbers Lithium Americas still has the ability to capture the EV market and its demand for Lithium.

Catalysts

LAC is one of the most looked upon junior mining projects in the United States. President Biden has identified the project as a key effort to slow the dependence of lithium from China. In March, 2024 the Department of Energy planned to lend the company up to 2.26 billion dollars in the coming decade. This funding will shield the company from risks that typically are present in junior miners.

Another key catalyst that has impacted the company is General Motors’ (GM) investment of $650 million dollars in 2023 making it the largest shareholder. This investment will be able to cover the first phase of the mine development.

Energy Considerations

Under The Energy Act of 2020, “critical minerals” are defined on both their importance to energy and their supply risk. Under this identification in the short term (2020–2025), Lithium is categorized as near critical because of its high importance to energy. When looking under the medium term (2025–2035), Lithium is threatened by its supply risk. Further showcasing demand for Lithium Americas production.

List of critical minerals in the short term posted by the Secretary of Interior (energy.gov)

List of critical minerals in the medium term posted by the Secretary of Interior (energy.gov)

Valuation

Financial Statements were very limited for LAC with consideration to their recent departure from their parent company. I have created a rough valuation of the company’s net income with consideration to their parent companies income and the most recent results. Lithium Americas has also posted estimates in their 2023 fiscal year investor presentation. I used some of these values in our estimates for share value with the exit multiple method. By FY29 I have found a price target of around $47.77. Lithium Americas is estimated to generate over a billion dollars per year for about 40 years. This is truly outstanding and shows the significance of this company in Americas Lithium developments.

FY23 Investor Presentation (lithiumamericas.com)

Technical Analysis

With the unprofitability and uncertainty of Thacker Pass, LAC has experienced some downside affecting their share price. Looking back at the last 5 years the company had a low of $1.25 and a high of $25.68. This range considers both the Argentina business and the newly formed American entity that has replaced the ticker since September 2023. The current decrease in the share price can be attributed to the separation of the companies as LAC is filled with operating expenses and no net income. There is not much further analysis that can be done because the company is still in the early stages. I have identified areas of support and resistance with Fibonacci levels. If Lac sees any movement upward in the coming months, a break of the 0.236 Fibonacci level could signal a strong trend. Besides from that looking at beta and moving averages is of little use because of the financials.

5 year chart of LAC with Fibonacci retracements (tradingview.com)

Risks

Lithium Americas is a high-risk investment, as are most junior mining companies. Extracting Lithium is a process that requires large amounts of space and water in order to refine the alkali metal. In particular the company has received backlash from the locals living in the Thacker Pass area. A group of Nevada Indigenous groups say “Thacker Pass is as important to their culture as Pearl Harbor is to American History”. Management has fought back in court against these locals, and have promised jobs and other initiatives to give back to the community.

Looking at the financial statements there are risks present but they are not significant when comparing the company to other junior miners. The company has 2.98 million in debt and 147 million in cash as of 3/31/2024, giving the company mobility to maintain mine development. Working capital is 131 million, another strength for an early stage miner. Recently loss from FCF has rocketed to -227 million in FY23 from -57 million in FY22 as the company is paying the fees of both development and operational costs. These numbers however pose little significance when considering the companies projections when the mine is fully operational.

Conclusion

Lithium Americas (LAC) is a well prepped junior mining project. The company has been in operation for 17 years and there operations in Argentina have been largely successful. As the company goes through the hardships of separation into two entities the stock price will be unstable, but for the better. Thacker Pass is a well funded project and Lithium Americas (LAC) is receiving subsidies from both GM and the Department of Energy. The company’s technicals and fundamentals show insignificant risk in the short term, because Lithium Americas is more of a long term play. With company projection we can assume that the company share price could triple shortly after operations begin. The company’s plan to use the mine for 40 years is attractive for a long term investment. Timing an investment in LAC is difficult, but it would be best to buy dips during volatility for larger positions.