Lithium Americas’ Earnings: Argentina Project Announces First Production

After updating our model to incorporate Lithium Americas’ LAC second-quarter earnings, we are maintaining our $50 per share fair value estimate (CAD 67) and no-moat rating. At current prices, we view shares of Lithium Americas as significantly undervalued, with the stock trading at less than half of our fair value estimate and in 5-star territory.

The company’s first project, the Cauchari-Olaroz joint venture with Ganfeng, announced it began producing lithium carbonate. Although 2023 volumes will be marginal, at roughly 5,000 metric tons, we expect the facility to fully ramp by mid-2024. Initial production will be lower-quality lithium carbonate, which will likely sell below China spot prices. However, we remain optimistic on the longer-term feasibility of the project and expect quality will improve over time.

While lithium spot prices have fallen in recent weeks, we think prices will likely rise by the end of the year as demand grows faster than supply. We expect the lithium market will end 2023 in a deficit, driven by rising electric vehicle sales and the growing buildout of energy storage systems, the utility-scale batteries used to support renewable power generation. As demand more than triples by 2030 to 2.5 million metric tons from 800,000 in 2022, we expect the lithium market will remain in a deficit, supporting prices well above the marginal cost of production. We forecast prices will average in the mid-$30,000 per metric ton range from 2023 through 2030.

Finally, on July 31, Lithium Americas announced its separation into two companies was approved by shareholders. A new U.S. entity will be created that will retain the Lithium Americas name and will hold the U.S.-based Thacker Pass project. Shares of this company will be issued to existing shareholders. The existing company will hold the two Argentina projects and will be renamed Lithium Argentina. We expect the separation will occur by the end of the year.