Lithium Americas: Value Pick in the Growing Lithium Space

Lithium Americas Corp. (TSE:LAC) stock trades at a price to book multiple of 7.38 times and will benefit greatly once operations at Caucharí-Olaroz begin

SmallCapPower | August 23, 2017: Lithium Americas Corp. (TSX: LAC) is a Canada-based resource company focused on the advancement of two significant lithium projects: the Cauchari-Olaroz project, located in Jujuy Province of Argentina, and the Lithium Nevada project, located in north-western Nevada, USA and on the manufacturing and sales of organoclay products from its plant located in Fernley, Nevada. The demand for lithium is substantial, and Lithium Americas can be a value pick in the lithium space as the demand for electronic vehicles is rising worldwide, in turn driving demand for lithium, a key component in electric car batteries.

Investment Thesis

  • Surging demand for Lithium
  • Strong Lithium prices owing to supply scarcity
  • Joint Venture with SQM
  • Positive Feasibility Study on Caucharí-Olaroz Project
  • Nevada Lithium Project

Surging demand for lithium

Demand for lithium has been surging consistently and is expected to grow 15% per year by 2025. Demand will remain strong on the back of automakers using lithium for electric vehicles. Additionally, the demand for lithium is outweighing the supply, which is an advantage for lithium mining companies. Today the lithium market is 182k tonnes, which is expected to increase to 3.1 million tonnes in 20 years.

Strong lithium prices owing to supply scarcity

Lithium prices are expected to stay strong and increase going forward as the demand outweighs the supply currently. Lithium prices have surged about 300% in China, with contract prices rising to over US$12,000/t LCE in 2016. Electric Vehicle penetration should increase by 14% by 2025 globally and 30% in Europe as the cost parity with conventional fuel vehicles will be reached in the next few years. Additionally, the barriers to entry in the lithium industry remain high, further supporting prices going forward.

Joint Venture with SQM

Lithium Americas partnered in a 50/50 JV with SQM to help build and operate the Caucharí-Olaroz lithium project. SQM is the largest producer of lithium brines, with over 20 years experience operating and expanding its world-class Atacama project in Chile. Lithium Americas can capitalize on its Argentinean relationships and operating expertise of SQM to build a lower-risk development approach.

Positive Feasibility Study on Caucharí-Olaroz Project

The feasibility study estimates an average annual production of 25,000 tpa battery-grade Li2CO3 with a project life of 40 years. The Probable reserves are estimated at about 1.5 million tonnes LCE at 698 mg/L Li. Capital costs and operating costs would amount to US$425 million and US$2,495/t Li2CO3. The average EBITDA is estimated at approximately US$233 million based on the lithium carbonate price assumption of US$12,000/t battery-grade Li2CO3. The project is expected to commence operations by 2019. Infrastructure and plants are being designed to be scaleable to a production capacity of 50,000 tpa of battery-grade lithium carbonate.

Nevada Lithium Project

The Lithium Nevada project is a clay-based lithium project and has been the subject of extensive exploration and processing development work. Lithium Americas has recently increased its technical team and is currently in the process of advancing permitting and exploration, in addition to the investigation of innovative lithium extraction and processing technologies that build on previous successful piloting studies for this project.

Financial Performance

Lithium Americas’ Organoclay sales have surged 860% YoY, to come in at US$1.6 million 2Q17 as compared to $0.2 million in the same quarter last year. Lithium Americas reported a net loss of US$9.7 million, or US$(0.03) per diluted share, versus a US$3.8 million loss, or US$(0.01) per diluted share, in 2Q16.

Outlook

The outlook for Lithium Americas remains positive as the demand for lithium carbonate is on the rise, and the Company will greatly benefit from the Caucharí-Olaroz and Nevada Lithium Projects once they commence operations. Its stock trades at a price to book multiple of 7.38x. Lithium Americas has surged ~35% YTD in 2017 while its peers (Lithium Juniors are down 3%) have lagged the Lithium Majors, which are up 67% on average in 2017.

Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.

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