Lithium Americas Should Begin Producing Lithium in 2023 Ahead of Planned Separation by End of Year

Strategist

Seth Goldstein

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Lithium Americas aims to become a low-cost pure-play lithium producer. The company has no current lithium sales volumes but is developing three resources that should eventually enter production, with the first project to begin selling lithium in the second half of 2023. Cauchari-Olaroz and Pastos Grandes are brine resources located in northwestern Argentina. Thacker Pass is the company’s clay resource in the U.S. state of Nevada.

As electric vehicle adoption increases, we expect maintained double-digit annual growth for lithium demand. Lithium Americas should benefit as there should be more than enough demand for company’s three resources to enter production and expand capacity over time.

At Cauchari-Olaroz, Lithium Americas owns 44.8% of the project, while Ganfeng, one of the world’s largest lithium producers, owns 46.7%. The remaining 8.5% stake is owned by JEMSE, an Argentina state-owned mining company. Once Cauchari-Olaroz enters production and begins ramping up volumes, the project should have a similar cost position as other Argentinean brines, such as the resources of narrow-moat Livent and Orocobre. The project is finishing construction on an initial 40,000 metric tons of capacity, with plans for additional expansions.

It owns 100% of the Pastos Grandes project. Located in Argentina, Pastos Grandes is currently under development. LAC also owns a 65% stake in a neighboring project in the same salar. The two projects will likely be consolidated into one.

The firm owns 100% of the Thacker Pass resource, which began construction in early 2023. Thacker Pass would be the first clay-based lithium resource to enter production globally. Currently, all lithium is produced from either brine or hard rock mining. Thacker Pass plans on bringing on 80,000 metric tons of capacity by 2030 with future expansions thereafter.

The firm plans to separate into two businesses by the end of 2023. Current shareholders will receive shares of the second company, which will retain the Lithium Americas name and be listed in the U.S. The existing LAC company will be renamed Lithium Argentina and will contain Cauchari-Olaroz and Pastos Grandes. Lithium Americas will contain Thacker Pass.

Business Strategy & Outlook

We assign Lithium Americas a no-moat rating. The company currently does not have any projects in production and is not generating revenue. However, we view the company’s three lithium production resources as a having the potential to generate excess returns on invested capital due to low cost of production.

Globally, lithium has been produced from either the evaporation of brine or the mining of spodumene minerals. Lithium Americas, along with partner Ganfeng, is currently in construction phase of its lithium brine project in Cauchari-Olaroz in Argentina’s Jujuy province. With aims of production in late 2023, the Cauchari-Olaroz should eventually have a similar cost position as other Argentinean brines, such as the resources of narrow-moat Livent and Orocobre. 

The Cauchari-Olaroz project will pump brine from the underground aquifers above ground into reservoir-like evaporation ponds to allow the brine to concentrate. With much of the water evaporated, the remaining salt can be processed into lithium derivatives, including lithium carbonate. In general, producing lithium carbonate from brines in Argentina costs less than when starting from spodumene or other brine resources with the exception of resources in Chile.

While the Cauchari-Olaroz project will have lower concentration levels and less desirable climate conditions than those of Chilean peers, Argentinean lithium brines sit in the bottom quartile of the global lithium cost curve. Despite a higher cash production cost than its Chilean peers, Argentina-based producers benefit from lower total royalties and taxes. The lower total royalties have diminished much of the gap between Argentina and Chile lithium costs. 

While we see the potential for the Cauchari-Olaroz project to become a low-cost resource, we currently assign it a no moat rating as the project is not yet in production. Development studies indicate the project could warrant a moat based on the cost advantage moat source. However, these estimates could prove significantly different from actual production costs. Should the project ramp up production with a bottom quartile unit cost, we would revisit our moat rating. 

Pastos Grandes is currently in development, and we forecast the project will begin operations in the late-2020s. The Pastos Grandes is located near Cauchari-Olaroz in Argentina and should have similar economics. We currently assign the project a no-moat rating, as the project is not in production, but plan to revisit once the company ramps up production.

Lithium Americas’ Thacker Pass project in the U.S. state of Nevada, which we project will begin operations in the mid-2020s. Thacker Pass aims to produce lithium from a clay resource. Currently, all global lithium is produced from brine or spodumene resources and a clay-based resource project has never entered production. Based on the company’s plan, the clay production process will be similar to spodumene mining, where clay will be dug out of the ground in an open-pit mine and processed into lithium carbonate. 

The lithium carbonate cost curve has traditionally been set by non-integrated producers who purchase and convert spodumene. Development studies indicate the potential for clay resources to be on the lower half of the cost curve. However, with no comparable resources, clay-based projects carry additional uncertainty as actual production costs could sit much higher on the cost curve. As a result, we see the threat of material value destruction should the project not be able to efficiently process clay into lithium chemicals, which precludes Lithium Americas from a narrow or wide moat rating. 

Further, we see additional uncertainties around project timing, as Lithium Americas faces legal challenges to its permits from opposing activists. While we think Thacker Pass will ultimately be granted all required permits to begin construction, challenges could delay the project indefinitely. We view the potential of an indefinite delay as another threat of material value destruction that would prevent us from awarding Lithium Americas with a narrow or wide moat rating. As a result, we currently assign the Thacker Pass project with a no-moat rating. However, similar to views for the Cauchari-Olaroz and Pastos Grandes projects, we would revisit our moat rating should the project ramp up production with a low unit production cost.

None

Economic Moat

Lithium Americas

Lithium Americas Corp. is a resource company, which engages in lithium development projects. Its projects include: Thacker Pass and Caucharí-Olaroz. The company was founded by Raymond Edward Flood, Jr. on November 27, 2007 and is headquartered in Vancouver, Canada.

Earnings data Q2 2023

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VANCOUVER, British Columbia, Dec. 20, 2022 (GLOBE NEWSWIRE) -- Lithium Americas Corp. (TSX: LAC) (NYSE: LAC) ("Lithium Americas" or the "Company") and Arena Minerals Inc. (TSX-V: AN) (“Arena”) are pleased to announce that they have entered into a definitive arrangement agreement (the “Arrangement Agreement”) pursuant to which Lithium Americas has agreed to acquire all of the issued and outstanding common shares of Arena not already owned by Lithium Americas (each, an “Arena Share”) by way of a plan of arrangement (the “Transaction”). Pursuant to the Arrangement Agreement, Arena's shareholders (“Arena Shareholders”) will receive 0.0226 (the “Exchange Ratio”) of a Lithium Americas common share (a “LAC Share”) for each Arena Share held (the "Consideration"). The Consideration to Arena implies a total equity transaction value (on a 100% basis) of US$227 million (C$311 million), based on the closing price on December 19, 2022, which would result in Arena Shareholders owning approximately 5.7% of Lithium Americas.

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