Lithium Americas (Argentina): An Outrageously Undervalued Lithium Company (NYSE:LAAC)

Efficient after the shut yesterday, Lithium Americas (“OldCo”) cut up into Lithium Americas Corp. (“NewCo”) (LAC) and Lithium Americas (Argentina) Corp. (NYSE:LAAC). The corporate issued equal shares in LAC and LAAC and allowed the market to find out the worth of every firm. In early buying and selling at this time, shares of LAC shot above $11, whereas shares of LAAC hovered round $6. Basically, the market dominated that the North American enterprise (Thacker Move) was ~65% of the OldCo’s worth. This text will take a look at how this cut up has left LAAC terribly undervalued.

Cauchari-Olaroz

Preliminary lithium manufacturing at Cauchari-Olaroz began in June, starting a year-long manufacturing ramp to achieve nameplate capability with battery-grade lithium. The challenge, which is predicted to supply 40,000 tpa of lithium carbonate, is the most important brine operation to return on-line in over 20 years (since SQM’s operation on the Salar de Atacama).

Lithium Argentina is entitled to 49% of manufacturing, whereas Ganfeng (OTCPK:GNENF) is entitled to the remaining 51%. Nonetheless, the native Jujuy authorities has an 8.5% stake within the challenge, which basically acts as a bottom-line royalty given it doesn’t have a lot involvement in day-to-day operations.

Regardless, in keeping with the corporate’s 2019 DFS for the Cauchari-Olaroz challenge, manufacturing prices are anticipated to be $3,576 per tonne of lithium carbonate. Whereas that is seemingly outdated, following the numerous inflation seen since then, it does reveal that the challenge operates on the backside of the lithium value curve. I’d estimate a extra consultant manufacturing value of $4,500 per tonne lithium carbonate.

Assuming market pricing of $25,000 per tonne, LAAC’s 44.8% stake within the Cauchari-Olaroz challenge would internet them a gross revenue of ~$367.36 million. As a reminder, the corporate at the moment expects to achieve this charge of manufacturing in mid-2024. Ganfeng and LAAC are additionally at the moment present process work to increase complete manufacturing to 60,000 tpa.

Pastos Grandes and Pozuelos

In 2021, Lithium Americas announced that it had entered right into a definitive settlement to amass Millennial Lithium for $390 million. A yr later, the company announced that it had entered right into a definitive settlement to amass Area Minerals (learn this text for extra details about the corporate and its properties) for $227 million.

These acquisitions gave Lithium Americas a complete of 27,796 hectares (14,091 hectares from Millennial and 13,705 hectares from Area Minerals) within the Pastos Grandes and Pozuelos salars. For reference, the large Cauchari-Olaroz challenge covers 60,712 hectares, of which 28,717 hectares are permitted for useful resource extraction. Observe that Ganfeng holds a 35% stake within the former Area Minerals challenge.

Millennial Lithium, previous to its acquisition, had accomplished a DFS that supported a 40-year mine life with a manufacturing charge of 24,000 tpa. The corporate estimated that manufacturing prices can be $3,388 per tonne of lithium carbonate.

The land from Area Minerals wasn’t almost as developed, with out even a consultant useful resource estimate. That being stated, early exploration work indicated the same useful resource to Millennial and, mixed, I’ve little doubt that output would attain 40,000 tpa.

Because the map above exhibits, Ganfeng additionally has a big stake within the space outdoors of its 35% stake within the former Area challenge. As such, it’s fairly attainable that the 2 firms will look to consolidate their initiatives underneath one roof, much like Cauchari-Olaroz, forming one other large brine operation.

Valuation Dialogue

Based mostly on the excellent share rely of 160,047,671, LAAC is at the moment valued only a few million {dollars} beneath $1 billion. To place this in context, acquisitions within the Pastos Grandes basin value a complete of $617 million, thus implying a worth of simply $383 million for Cauchari-Olaroz.

It’s not like Lithium Americas overpaid for these belongings both. Ganfeng’s $962 million acquisition of Lithea, which gave it entry to a 13,470-hectare land bundle within the Pastos Grandes and Pozuelos salars, is strong proof of that assertion. Take into accout, LAAC additionally obtained an extra 11,000 hectares within the Cauchari salar (Cauchari East) with its acquisition of Millennial (not counted within the 60,712-hectare Cauchari-Olaroz challenge).

Regardless, as a producing lithium firm, LAAC’s worth needs to be rather more carefully aligned with the anticipated output at Cauchari-Olaroz. Upon reaching nameplate capability, Cauchari-Olaroz needs to be valued at at least $2.75 billion (based mostly on a 7.5x gross revenue a number of). Factoring within the deliberate 20,000 tpa enlargement, this can be a conservative estimate.

Whereas, once more, far too conservative for my part given LAAC’s continued growth of the initiatives, the corporate’s different properties needs to be valued at at least $617 million (the mixed acquisition worth). This means a complete worth of $3.367 billion for Lithium Argentina upon reaching nameplate manufacturing capability at Cauchari-Olaroz.

Investor Takeaway

3x upside in lower than a yr for a corporation that’s largely de-risked, having began its manufacturing ramp already, actually is senseless to me. For some cause, the market appears to worth hard-rock belongings above brine belongings, regardless of brine belongings occupying a decrease spot on the fee curve. However this has been taken to an excessive with LAAC.

There’s no cause that an organization like Patriot Battery Metals (OTCQX:PMETF), which hasn’t even accomplished a preliminary feasibility research, needs to be valued (present worth of ~$900 million) equally to a producing lithium firm with world-class belongings. Let us take a look at LAC too, which holds the Thacker Move challenge.

Anticipated to ultimately attain 80,000 tpa of lithium carbonate manufacturing, there’s no query that this challenge is a behemoth. Nonetheless, throughout LAAC’s varied initiatives in Argentina, I really feel quite assured that the corporate ought to surpass 70,000 tpa adjusted for Ganfeng’s possession. But once more, LAAC is far nearer to mass commercialization however trades at a considerably decrease worth (LAC is at the moment valued at ~$1.8 billion).

I don’t really feel that LAC is overvalued in any respect, it too has important upside, however I take advantage of this comparability to spotlight how absurd LAAC’s present worth appears to be. At this level, it appears as if shares received’t commerce close to a good worth till Cauchari-Olaroz begins producing at scale, although they are going to seemingly transfer based mostly on varied catalysts main as much as that. These catalysts could embrace first income recognition, anticipated this yr, and first battery-grade lithium carbonate manufacturing.

Actually, LAAC has already shipped its first lithium merchandise and plans to supply a complete of 5,000 tonnes of lithium carbonate by the tip of the yr. It’s unclear what purity this will likely be, however revenues from these gross sales needs to be at the very least $100 million (assuming gross sales value of $20,000 per tonne).

Editor’s Observe: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.