Lithium Americas On Track for First Lithium Production in 2023

After updating our model to incorporate Lithium Americas’ LAC fourth quarter results, we reduce our fair value estimate to $50 (CAD 68) per share from $56 (CAD 74). Our no-moat rating is unchanged. The reduction comes from our outlook for lower near-term volumes, lower near-term lithium prices, and higher capital expenditures than we previously forecast, partially offset by higher medium-term lithium prices.

At current prices, we view Lithium Americas shares as materially undervalued, with the stock trading at less than half of our updated fair value estimate. We continue to view Lithium Americas as our top lithium pick. We think the market is overly bearish on the direction of long-term lithium prices due to the recent decline in spot prices, driven by slowing demand growth in China to begin the year.

Admittedly, when Lithium Americas’ first resource, Cauchari-Olaroz, enters production later this year, it will sell lithium in China and likely receive Chinese spot prices, which are currently in the mid-$30,000 per metric ton. However, as demand grows throughout the year, we expect prices will rise and we forecast the lithium market will remain undersupplied in 2023 and beyond.

Lithium Americas is finishing construction at the Cauchari-Olaroz facility and revised capital expenditures higher for the project. The company now expects production will begin the second half of 2023. Management guided to the project selling less than 20,000 metric tons this year, with most production coming in the fourth quarter. While this is a higher cost and lower volumes for 2023 versus our previous forecast, we expect the project will ultimately be a low-cost lithium resource that should generate strong profits and make Lithium Americas nearly immediately profitable when the project begins selling lithium.