Lithium junior mining company Lithium Americas Corp. (NYSE: LAC) is finally ready to go into lithium production this year. The demand for lithium is expected to continue growing with the migration to electric vehicles (EV).
The big three automakers have all invested in electrification. Volkswagen AG (OTCMKTS: VWAGY) expects all its models to be electric by 2030. Electric vehicles (EV) can’t operate without batteries. Batteries can’t operate without lithium. The original Tesla Inc. (NASDAQ: TSLA) Model S required 6,000 lithium batteries.
China Powerhouse
China is leading the world in global lithium processing and refining. China’s CATL is the world’s largest battery maker. The word that it has offered discounts to some Chinese automakers sent lithium producer stocks tanking on Feb. 17, 2023.
One of the world’s largest publicly traded lithium producers Albermarle Corporation (NYSE: ALB), shares tanked nearly 10%, and Tesla supplier Piedmont Lithium Inc. (NASDAQ: PLL) shares fell 12%. While China leads in processing lithium, it only held a 12% stake in the planet's raw lithium supply as of 2020.
General Motors Investment Details
On Jan. 31, 2023, Lithium Americas announced a purchase agreement with General Motors Co. (NYSE: GM). The GM deal calls for GM to make a $650 million investment in two separate tranches. The first tranche involved GM acquiring 15 million common shares of LAC at $21.34 per share for $320 million in proceeds.
These proceeds will remain in escrow until conditions under the Transaction Terms are met. If the terms are met, the funds will be released to LAC, and GM will take a 9.999% equity stake in LAC. LAC expects this to occur by mid-2023.
GM has also agreed to subscribe and invest $330 million for new Lithium America stock shares after its separation at a market price of 130% of the subscription price of Tranche 1. General Motors will be Lithium Americas largest shareholder.
Thacker Pass Mine Ruling
Thacker Pass is a 100% owned 17,000-acre mining project in Nevada. It’s estimated to contain 13.7 million tonnes of lithium carbonate making it the largest known lithium resource in the U.S. The project targets the production of up to 80,000 tonnes of battery-quality lithium carbonate per year.
Lithium Americas attained a Record of Decision (ROD) from the U.S. Bureau of Land Management (BLM) for its Thacker Pass mine and lithium project. Environmental groups opposed and filed a lawsuit against BLM and Lithium Americas, stating that they didn't adequately consider the environmental impacts on water resources and wildlife.
On Feb. 6, 2023, Lithium America's Thacker Pass mine was approved by Judge Du of the U.S. District Court of Nevada. It rejects the plaintiff's claims against revoking the Thacker Pass permits except for the BLM fixing a technicality concerning waste clay. There is a low probability that the decision will get appealed.
Massive Rising Capital Costs Since PFS
Since its 2018 pre-feasibility study (PFS), LAC estimated $4,088/tonne in production costs for Phase 1. In 2023, LAC had to raise its estimated production costs by 43% to $7,198/tonne. Capital costs for Phase 1 jumped almost 4X from $581 million in 2018 to $2.268 billion.
Phase 1 production is expected to commence in the second half of 2026. Phase 2 capital costs jumped over 400% from $478 million to $1,729 billion. It leaves a $1.618 billion shortfall to finance the Thacker Pass project even after GM's $650 million investment. This could set up more debt raises. Thacker Pass production is supposed to supply lithium for up to 1 million EVs annually.
Argentina Mine Production Starts in 2023
Lithium Americas has a 44.8% stake with partners Gangfeng Lithium at 46.7% and JEMSE at 8.5%, targeting Phase 1 production of 40,000 tonnes per year. It's expected to expand to add 20,000 tonnes per year. The Cauchari-Olaroz mine in Argentina is slated to go into production later this year.
This mine will produce 40,000 tons of battery-grade lithium carbonate for the next 40 years. It transforms Lithium Americas from a junior exploration company to a bonified lithium producer.
Weekly Falling Price Channel
The weekly candlestick chart on LAC illustrates a falling price channel that commenced in September 2022 after peaking at $32.50. Each drop fell to a lower low and bounced to a lower high. These falling parallel trendlines form the upper and lower channel. LAC bottomed at $17.58 in January 2023 before triggering a weekly MSL breakout through $20.92.
The General Motors deal detailing the 15 million share of the common stock purchase at $21.34 in its first tranche investment put a floor on LAC shares. Shares have attempted to break the falling channel but have yet to close a weekly candle above the upper trendline.
The weekly 20-period exponential moving average (EMA) sits at $23.42, while the 50-period MA sits flat at $25.30. Pullback support levels are $21.34 GM floor, $20.92 weekly MSL trigger, $19.45, and $17.58.
