BC Business
Analysts think the producer of vital battery materials could be worth eight times its current price
The stock: Since Vancouver-based Lithium Americas split in two a year ago, the focus has been on the eponymous American spinoff, focused on developing the largest known lithium deposit in the U.S., Nevada’s Thacker Pass. That was the company that General Motors opted to back to the tune of US$650 million in return for guaranteed supply of the key automotive battery ingredient. But Thacker Pass is still years away from producing any lithium. Meanwhile, the other entity spun out of the deal, Lithium Americas (Argentina) Corp. (TSX,NYSE:LAAC), marks a year of production as of this quarter. And the few observers watching it seem to think the stock could be very rewarding for patient investors over the long term.
The drivers: Commodities like gold and silver have been testing new highs this year. Lithium is in the opposite situation. Assuming carmakers and other energy users stick with lithium-ion batteries to power their products, the demand for lithium is going to multiply many times over. But for now, actual consumption is trending below forecasts, and each new mine or brine operation pushes the supply ahead of demand.
Into this sub-optimal market environment, Lithium Argentina started and continues to ramp up production at its Cauchari-Oloroz brine evaporation complex in Argentina, 44.8-percent owned with Chinese partner Ganfeng Lithium. In its latest quarterly report, the company said Cauchari-Oloroz was operating at 70 percent of its design capacity of 40,000 tonnes of lithium carbonate per year. On an operating basis, it’s cash-flow positive. And it has another, 85-percent owned brine project in development called Pastos Grandes.
So it’s not for poor execution that LAAC stock has lost 60 percent of its value so far this year—it closed at $3.31 on the TSX Tuesday (Sept. 24)—but rather the plunging price of the commodity. Several analysts see that as a buying opportunity for investors willing to wait for the lithium market to turn around.
Word on the street: “We view Lithium Argentina as a top pick for long-term investors, given its low-cost Argentina production,” Morningstar analysts wrote in their September research update on Canadian equities. “As production ramps up, we expect Cauchari-Oloroz will end up among the lowest-cost lithium operations globally on an all-in sustaining cost basis. We think the market does not give Lithium Argentina credit for its ability to improve its unit profits even if lithium prices do not recover, because of falling unit production costs and improving product quality.” The researchers put a fair-value estimate of $27 on the stock.
Coming and going: Earlier this month, First Majestic Silver Corp. (TSX:AG) announced it was acquiring Gatos Silver (TSX:GATO), which owns a 70-percent interest in the Cerro los Gatos mine near First Majestic’s other operations in Mexico, in an all-share deal worth $970 million. Both companies are based in Vancouver. The deal is expected to close in early 2025.