Lithium Americas and the Electric Vehicle Bandwagon
After reaching a high of over $41 in 2021, Lithium Americas has languished since, spending much of its time in the $20’s range. This is not surprising, since LAC does not make any money and carries over $230 million in liabilities. However, I believe that LAC share price has the potential to make an exponential run over the next 5 years.
The bearish case.
Before discussing the potential growth of this stock, it’s important to discuss the bearish scenario and risks for this company. The biggest risk for LAC is the environmental concerns for their Thacker Pass lithium field. Earlier in October, a federal judge delayed a hearing regarding a lawsuit opposing the lithium mine there. The judge set a new court date for January 5, and while it is unlikely to stop the mine, LAC is in the pre-production phase and has no real sustainable income, so any delay affects the cash position of the stock.
The cash position of LAC is solid, with around $440 million in cash and a $75 million line of credit and a cash burn rate of around $10 million per quarter, indicating the long-term impact of any delay is minimal. If they need to raise more cash, they may liquidate some assets, this would lower the book value of the stock to below $6.
The bullish scenario.
There is already an enormous gap between supply and demand for lithium. Analysts forecast the demand for lithium to increase by 1,200% in the next 20 years from the current levels. The green pioneer state of California has already set a roadmap to ban the sale of new gasoline vehicles by 2035. Likely, many more states and countries will follow suit. While there are environmental concerns about the Thacker Pass mine, of which they own 100%, the push for electric vehicles will weigh heavier on the decisions of regulators. This is the largest lithium deposit in North America, so the likelihood the USA Government will leave those reserves untapped is minimal. The company is still moving forward with construction plans for the mine and plans to assist the Shoshone tribe located 40 miles from the mine.
Even if there is a delay at their USA mine, they own 44% of the largest brine resource development in South America. This mine is close to completion and they expect to generate between $2.3-$2.5 billion in annual revenue with lithium at its current price range for the next 40 years. If lithium prices continue to rise, then the profit margins will experience exponential growth.
Unlike some unprofitable companies, LAC does not carry much debt on its balance sheet. Their current debt is just over $200 million, with many investors choosing equity over debt. With a strong cash position and low debt, they will complete the development of these two mines in a strong financial position. When the Argentinian Cauchari-Olaroz and Thacker Pass mines become fully operational, these two mines will produce a combined 60,000–70,000 tpa.
I expect over the next 5 years, even in weak economic conditions, to see LAC market capitalization rise to $30-$40 billion or a stock price of around $200-$250. Lithium powers the electric vehicle bandwagon, and Lithium Americas is poised for exponential growth in the coming years.
The bearish case.
Before discussing the potential growth of this stock, it’s important to discuss the bearish scenario and risks for this company. The biggest risk for LAC is the environmental concerns for their Thacker Pass lithium field. Earlier in October, a federal judge delayed a hearing regarding a lawsuit opposing the lithium mine there. The judge set a new court date for January 5, and while it is unlikely to stop the mine, LAC is in the pre-production phase and has no real sustainable income, so any delay affects the cash position of the stock.
The cash position of LAC is solid, with around $440 million in cash and a $75 million line of credit and a cash burn rate of around $10 million per quarter, indicating the long-term impact of any delay is minimal. If they need to raise more cash, they may liquidate some assets, this would lower the book value of the stock to below $6.
The bullish scenario.
There is already an enormous gap between supply and demand for lithium. Analysts forecast the demand for lithium to increase by 1,200% in the next 20 years from the current levels. The green pioneer state of California has already set a roadmap to ban the sale of new gasoline vehicles by 2035. Likely, many more states and countries will follow suit. While there are environmental concerns about the Thacker Pass mine, of which they own 100%, the push for electric vehicles will weigh heavier on the decisions of regulators. This is the largest lithium deposit in North America, so the likelihood the USA Government will leave those reserves untapped is minimal. The company is still moving forward with construction plans for the mine and plans to assist the Shoshone tribe located 40 miles from the mine.
Even if there is a delay at their USA mine, they own 44% of the largest brine resource development in South America. This mine is close to completion and they expect to generate between $2.3-$2.5 billion in annual revenue with lithium at its current price range for the next 40 years. If lithium prices continue to rise, then the profit margins will experience exponential growth.
Unlike some unprofitable companies, LAC does not carry much debt on its balance sheet. Their current debt is just over $200 million, with many investors choosing equity over debt. With a strong cash position and low debt, they will complete the development of these two mines in a strong financial position. When the Argentinian Cauchari-Olaroz and Thacker Pass mines become fully operational, these two mines will produce a combined 60,000–70,000 tpa.
I expect over the next 5 years, even in weak economic conditions, to see LAC market capitalization rise to $30-$40 billion or a stock price of around $200-$250. Lithium powers the electric vehicle bandwagon, and Lithium Americas is poised for exponential growth in the coming years.
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