Lithium Americas Earnings: First Project Nears Production as Business Separation Plans Finalized

After updating our model to incorporate Lithium Americas’ LAC first-quarter results, we maintain our $50 per share fair value estimate (our Canadian fair value falls to CAD 67 per share from CAD 68 based on currency movements). Our no-moat rating is unchanged. 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. Lithium Americas is the most undervalued lithium producer under our coverage.

The firm’s first project, the Chauchari-Olaroz joint venture with Ganfeng, is nearing production. Initial production of lower-quality lithium should begin in the second half of 2023 with battery-quality lithium production by the end of the year. We estimate production will continue to ramp through 2024. Once stage 1 is completed and production begins, management plans to begin construction on stage 2. We ultimately expect the annual capacity of the project will reach 120,000 metric tons.

Lithium Americas’ Thacker Pass project is in construction. To fully fund construction, Lithium Americas applied for a loan from the U.S. Department of Energy’s ATVM program, which will potentially fund up to 75% of the total capital costs for phase 1. The firm has been conditionally approved with a final approval coming after due diligence is complete. We think the project will likely receive the loan. Combined with General Motors’ $650 million equity investment, Thacker Pass should be fully funded.

Lithium Americas’ board of directors also approved the separation of the firm into two companies based on geography. Current shareholders will receive shares in a second company, which will retain the Lithium Americas name and be listed in the U.S. This will contain the Thacker Pass project. The current company will then be renamed Lithium Argentina and contain the Chauchari-Oloaroz and Pastos Grandes assets.