Lithium Americas Corp. (NYSE: LAC) is developing the Caucharí-Olaroz, project, under construction in Jujuy, Argentina, and on the closing of a new transaction will have a 62.5% interest in Cauchari-Olaroz with Ganfeng Lithium holding a 37.5% interest. In addition, Lithium Americas owns 100% of the Thacker Pass project (formerly Stage 1 of Lithium Nevada project), and RheoMinerals Inc., a supplier of rheology modifiers for oil-based drilling fluids, coatings, and specialty chemicals.
The company is presently featuring in the most active list and its shares skyrocketed with incredibly strong volumes after its announcement on August 13, 2018, that it has entered into agreements to implement several transactions, pursuant to which, among other things, a subsidiary of SQM has agreed to sell its interest in Minera Exar to a subsidiary of Ganfeng. As a result of the Transaction, Lithium Americas’ interest in the Caucharí-Olaroz project will increase from 50% to 62.5% with Ganfeng holding the remaining 37.5% interest. In connection with the Transaction, Ganfeng has also agreed to provide Lithium Americas with a new $100 million unsecured, limited recourse, subordinated loan facility. With this new source of financing, the Company expects to have more than sufficient financial resources to fully fund its 62.5% share of Minera Exar’s capital expenditures related to Stage 1 of the Caucharí-Olaroz project.
Recent achievements of the company:
Analysts tracking the stock views the overall deal as “highly positive” for the stock, which will result in LAC taking majority ownership of the project and will enable it to take advantage of nearly three years of SQM’s design input and project staffing experience. As per marketbeat.com, average twelve-month price target is $9.50, suggesting that the stock has a possible upside of 126.19%.
Fine prints of the deal:
- GFL agrees to purchase SQM’s interest in Caucharí-Olaroz. GFL has agreed to purchase SQM’s interest in Caucharí-Olaroz and enter into a new shareholders’ agreement with LAC to govern Minera Exar.
- LAC increases its interest in Caucharí-Olaroz to 62.5%. LAC will increase its interest in Caucharí-Olaroz from 50% to 62.5% with GFL holding the remaining 37.5% interest.
- GFL has agreed to provide LAC with a new US$100 million unsecured, limited recourse, subordinated loan facility.With this new source of financing, to be provided as part of the Transaction, LAC expects to have more than sufficient financial resources to fully fund its 62.5% share of the capital expenditures for Stage 1 of Cauchari-Olaroz.
- Construction remains on track for the first production in 2020. Construction continues with over 400 employees and contractors mobilized in Jujuy, Argentina.
- Further optimization expected. LAC’s and GFL’s technical teams expect to immediately collaborate on ways to improve design efficiencies and leverage GFL’s technical and project execution expertise including experience producing battery quality lithium carbonate from concentrated brine.
- LAC and GFL enter Strategic Collaboration Agreement to explore future partnership opportunities. LAC and GFL have agreed to collaborate and explore future opportunities to jointly develop lithium resources across North and South America.
About the loan facility: Pursuant to the Transaction, Ganfeng Lithium has agreed to provide Lithium Americas with a US$100 million subordinated loan facility. The Loan Facility is repayable exclusively out of future distributions from Minera Exar. The Loan Facility complements Lithium Americas’ existing senior credit facilities from Ganfeng Lithium and Bangchak Corporation in the aggregate amount of US$205 million and provides Lithium Americas with committed financing to fully support all of Lithium Americas’ capital expenditure funding obligations for the development of Stage 1 of the Project.
Operational profile and timelines at a glance:
Latest Quarter Financial Position:
- Net loss for the three months ended June 30, 2018, was $6,649 compared to $9,726 for the three months ended June 30, 2017. The decrease in the net loss was mainly attributable to the lower loss from the Joint Venture (as most costs were capitalized in the three months ended June 30, 2018, but expensed during the three months ended June 30, 2017), lower stock-based compensation and higher foreign exchange gain partially offset by higher exploration expenses at the Thacker Pass project and higher general and administrative expenses. Basic and diluted loss per share was $0.08 in Q2 2018 versus $0.15 in Q2 2017.
- Liquidity: As at June 30, 2018, the Company had US$31.5 million in cash and cash equivalents. As a result of the completion of investment agreements with GFL International Co., Ltd. (“Ganfeng”) and The Bangchak Petroleum Public Company Limited in 2017, the Company has a US$205 million credit facility to finance its share of capital expenditures with respect to the Minera Exar. On August 8, 2018, the Company received $5 million on its first drawdown of this credit facility.
Key risk factors and potential stock drivers:
- Exposure to cyclicality and the volatility in the Market prices for key end-use products could affect the value of the Company and its ability to develop the Cauchari-Olaroz Project and the Lithium Nevada Project.
- The ability of the Company to successfully develop its upcoming project without any significant cost and time overruns will be affected by changes in the market price of lithium-based end products, such as lithium carbonate. The market price of these commodity-based products fluctuates widely and is influenced by numerous factors which are beyond LAC’s control.
- The development of lithium operations at the Cauchari-Olaroz Project and the Lithium Nevada Project is dependent on the adoption of lithium-ion batteries for electric vehicles, and other large format batteries that currently have a limited market share and whose projected adoption rates are not assured. The company’ business risk profile could improve significantly if there is higher than expected demand for lithium and a structural shift in consumer preferences.
- Changes in government and environment regulations may affect the Company’s development of the Cauchari-Olaroz Project and the Lithium Nevada Project.
- On Wednesday, August 15th, 2018, LAC was at $3.87, on traded volume of 270K shares exchanging hands. Market capitalization is $350 million. The current RSI is trending at 41.20
- In the past 52 weeks, shares of LAC have traded as low as $3.50 and as high as $10.95
- At $3.87, shares of LAC are trading below its 50-day moving average (MA) at $4.85 and below its 200-day moving average (MA) at $6.59
- The present support and resistance levels for the stock are at $3.38 & $4.70 respectively.