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Lithium is a crucial resource used in the development of energy storage technology (batteries), particularly in electric vehicles. Lithium Americas is a developmental-stage lithium supplier with projects in Argentina along with a project in the final stages of approval in Nevada. Here are 5 reasons I like this stock:
Lithium prices continue to soar due to demand from the electric vehicle boom. Lithium prices quadrupled in 2021 and have doubled again thus far in 2022. Lithium will continue to be in high demand as the Russia/Ukraine conflict has only highlighted the global need to shift away from oil and gas and for Europe to gain energy independence from Russia. Chinese manufacturers have recently called for lithium prices to stabilize, but the short term supply deficit is only growing and many projects in development won't start producing for several years to come. In the next 8 years the demand is forecast to rise nearly 10 fold.
Global lithium production in 2021: 100,000 tonnes
Projected lithium demand by 2030: 2,100,000 tonnes
Current lithium spot price: $78,100 per ton (497,500 CNY/ton)
The proposed Thacker Pass Project in Nevada will be the largest lithium supply in North America and one of the largest in the world. This project is vital for the United States to develop a lithium supply independent of foreign suppliers (in particular Chinese companies which control a large portion of global supply). Thacker Pass has received all permits and is awaiting one final step, which is the conclusion of a lawsuit that was filed by Native American tribes in the area that are opposed to the mine. While there is certainly some risk that the lawsuit could rule in favor of the Tribes, I consider this unlikely given the dire need for America to be a player in the future of energy storage supplies and not be dependent on China. To put it bluntly, the United States doesn't exactly have the best track record when it comes to Native American interests when they are pitted against monetary and global political motivations. If the court rules in favor of Lithium Americas, this project is expected to produce 40,000 tonnes per year in phase 1 to be completed by 2025 and another 40,000 tonnes per year in the subsequent phase 2 (timing TBD).
The court ruling is expected in the 3rd quarter of this year, and I anticipate a favorable decision for Lithium Americas.
Lithium Americas has two projects in Argentina: Cauchari-Olaroz (CO) and Pastos Grandes (PG). Like Thacker Pass, CO is a 2-phase project with 40,000 tonnes per year projected in phase 1 with an additional 20,000 tonnes per year projected in phase 2. Phase 1 of CO is 85% complete and first production is expected in the second half of this year. While Lithium Americas is only 49% owner in the CO project, this is near-term production that will take immediate advantage of the red-hot lithium market and will help produce the revenue necessary to develop phase 2 of CO as well as PG. PG, by way of Millennial Lithium Corporation, was an acquisition that was finalized in January of this year and is projected to produce beginning in 2024. PG is expected to generate 24,000 tonnes per year.
Lithium Americas is currently considering a spin-off of the Thacker Pass project from its operations in Argentina. While spin-offs don't necessarily always generate additional value, in this case the projects should both benefit from being able to be valued separately. If the spin-off is approved, any shares currently owned of Lithium Americas will provide shares of both future companies. Both companies would have their own catalysts coming this year by way of the court ruling on Thacker Pass and first production by CO, both of which should be happening this year. In my opinion, the spin-off could be considered a catalyst in-and-of-itself.
The recently passed Infrastructure Bill directly supports lithium production. There is projected federal funding available that Lithium Americas has already applied for that will help them to finance the construction of the Thacker Pass project. If approved, this additional federal funding would help Lithium Americas retain full ownership of this massive project while maintaining their solid balance sheet position (as of 12/31): $510M in cash
$817M in assets
$272M in debt
Let's pull all of this information together. Global lithium production last year was 100,000 tonnes. In the next 3 - 4 years, with the projected completion of CO phase 1&2, PG, and Thacker Pass phase 1, Lithium Americas will be able to supply nearly as much (93,400 tonnes) as the entire global supply in 2021. And that is without the additional 40,000 tonnes projected from Thacker Pass phase 2. Even with these projects coming online and numerous other projects in development around the world, lithium supply has a long way to go before it can even begin to keep pace with projected demand. This should keep lithium prices high for the foreseeable future. Let's be conservative though and say lithium prices come down to $50,000/ton with various projects coming online over the next few years to loosen demand. Based on projected production in 3-4 years' time, that is $4.67 billion in revenue. Using Albemarle's (the world's current largest lithium producer) current price-to-sales ratio of 6.47 and outstanding Lithium Americas shares of 120.2M, that yields a valuation of $251/share.
TLDR: EV's need lithium. Not enough lithium and most controlled by China. USA doesn't want China to control. Lithium stay expensive. Lithium Americas mine lots of lithium soon. Lithium Americas make big money.
Current Positions: Shares, 5/20 $35C, 11/18 $40C, 1/20 $45C, 1/20 $47.5C