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Lithium Americas Shares Rise 44% in 3 Months: How to Play the Stock?
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Lithium Americas Corp.'s (LAC - Free Report) shares have rallied 43.8% in the past three months, outperforming the Zacks Mining – Miscellaneous industry’s rise of 0.1%. The bullishness reflects the closing of a $2.26 billion U.S. Department of Energy (“DOE”) loan for the construction of the Thacker Pass project and a new joint venture agreement with General Motors Company (GM - Free Report) .
LAC stock is trading at a roughly 48.5% discount to its 52-week high of $7.71, reached on April 12, 2024.
Technical indicators show that LAC has been trading above the 50-day simple moving average (SMA) since Sept. 26, 2024, indicating a bullish trend.
LAC’s Shares Trade Above 50-Day SMA
Image Source: Zacks Investment Research
Is the time right to buy LAC’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
LAC Well-placed on Long-term Lithium Demand Growth
Lithium Americas, a lithium exploration and development company, is well-placed to gain from significant long-term growth in the lithium market. While lithium demand has slowed down and prices have been going downhill amid rising supply since 2023, long-term fundamentals remain solid for lithium, a critical mineral in the global transition to clean energy. The global demand for lithium is expected to experience exponential growth due to the accelerating adoption of electric vehicles (EVs) and renewable energy storage solutions. Lithium is expected to become increasingly valuable as the global push for clean energy and EVs accelerates.
As governments push for carbon neutrality, EV adoption has surged, driven by both policy initiatives and consumer demand. Demand for Lithium, a core component of EV batteries, is expected to accelerate on the back of significant global EV adoption driven by government mandates and consumer preference for greener alternatives. The increasing adoption of lithium-ion batteries in energy storage systems also contributes to this demand surge. Lithium Americas is well-positioned as a significant player in the lithium space to benefit from this trend.
Thacker Pass: The Fulcrum of LAC Stock’s Prospects
Lithium Americas remains committed to developing the fully owned Thacker Pass project located in Humboldt County in Nevada, which hosts the largest known measured and indicated lithium resource in North America. LAC is focused on advancing Thacker Pass, its only material mining project and most significant growth opportunity, toward production. Initial construction of the project commenced in March 2023. LAC targets a nameplate production capacity of 40,000 tons per annum (tpa) of battery-grade lithium carbonate during Phase 1. In the second phase of production (Phase 2), it targets an additional 40,000 tpa, for a total production capacity of 80,000 tpa.
Thacker Pass is one of the largest known lithium deposits in the United States and is crucial for reducing the reliance on foreign lithium suppliers. The U.S. government has shown strong support for domestic lithium production, which is crucial for national security and the development of EV infrastructure. With the increasing focus on developing domestic lithium supply chains in the United States, Thacker Pass could play a vital role in securing the U.S. lithium supply. LAC is expected to benefit from government backing in the form of favorable regulatory frameworks and support for domestic lithium production, given the growing recognition of lithium’s strategic importance. Thacker Pass is expected to support lithium needs for up to 800,000 EVs annually.
Strong Financial Backing for Lithium Americas
Lithium Americas is committed to engaging with several stakeholders to develop Thacker Pass responsibly. On Oct. 28, 2024, LAC and the U.S. DOE’s Loan Programs Office closed a $2.26 billion loan under the Advanced Technology Vehicles Manufacturing Loan Program to finance the construction of the processing facilities at Thacker Pass, marking a significant milestone.
In January 2023, General Motors announced a $650 million equity investment in Lithium Americas to assist the latter in constructing and developing Thacker Pass. The first part of this two-tranche investment was completed in February 2023. In August 2023, General Motors and Lithium Americas postponed a $330 million second-tranche investment to explore alternative investment structures.
On Oct. 16, 2024, GM and LAC entered into a new agreement to set up a joint venture, under which the automaker will supply $625 million in cash and credit to LAC for Thacker Pass. GM will hold a 38% stake in Thacker Pass. The investment includes an initial $330 million cash contribution at JV closing, $100 million at a final investment decision for Phase 1, and a $195 million letter of credit before accessing a $2.3 billion DOE Loan. The JV Transaction replaced the $330 million two-tranche investment commitment from GM under its original investment agreement.
GM also agreed to extend its existing offtake agreement for up to 100% of production volumes from Thacker Pass Phase 1 to 20 years and will also enter into an additional 20-year offtake agreement for up to 38% of production volumes from Phase 2 upon closing of the JV.
The DOE loan and GM’s investment will provide the bulk of the required capital to fund Thacker Pass Phase 1 construction. Thacker Pass Phase 1 production is targeted to commence in 2027. In late April 2024, LAC completed a $275 million equity offering, which it expects to use in advancing the Thacker Pass construction.
Project Delays May Impact LAC’s Prospects
Lithium Americas is yet to generate revenues from operations and relies on equity and other financings to fund operations. LAC is heavily dependent on the successful development of Thacker Pass and bringing it into production. Production from Thacker Pass is also not expected to ramp up until 2028. A potential delay or setback will significantly impact the company’s prospects.
Lithium Americas’ Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for LAC has been revised downward over the past 60 days. The consensus estimate for 2025 has also been revised lower over the same time frame.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
LAC Stock Underperforms Industry and S&P 500
LAC’s shares have lost 38% year to date, underperforming the industry’s 14.2% decline and the S&P 500’s rise of 25.4%. A couple of key players in the lithium mining space, Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) have lost 25% and 36.5%, respectively, this year, reflecting the significant decline in lithium prices due to slowing demand growth for EVs, inventory glut and increased supply.
LAC’s YTD Price Performance
Image Source: Zacks Investment Research
Final Thoughts: Hold Onto LAC Stock
Lithium Americas presents an attractive investment opportunity driven by exposure to the growing demand for lithium across various industries. As the world transitions from fossil fuels to electrification, LAC is well-placed to capitalize on this transformation as a supplier of this critical material, making it worth considering for long-term growth. Investors seeking to capitalize on the booming demand for lithium can gain early exposure to a company that is set to play a crucial role in meeting the world’s future energy needs. However, there remain risks around the successful completion of the Thacker Pass project. Declining earnings estimates also cast a pall on the company's prospects. Therefore, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
Image: Bigstock
Lithium Americas Shares Rise 44% in 3 Months: How to Play the Stock?
Lithium Americas Corp.'s (LAC - Free Report) shares have rallied 43.8% in the past three months, outperforming the Zacks Mining – Miscellaneous industry’s rise of 0.1%. The bullishness reflects the closing of a $2.26 billion U.S. Department of Energy (“DOE”) loan for the construction of the Thacker Pass project and a new joint venture agreement with General Motors Company (GM - Free Report) .
LAC stock is trading at a roughly 48.5% discount to its 52-week high of $7.71, reached on April 12, 2024.
Technical indicators show that LAC has been trading above the 50-day simple moving average (SMA) since Sept. 26, 2024, indicating a bullish trend.
LAC’s Shares Trade Above 50-Day SMA
Is the time right to buy LAC’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
LAC Well-placed on Long-term Lithium Demand Growth
Lithium Americas, a lithium exploration and development company, is well-placed to gain from significant long-term growth in the lithium market. While lithium demand has slowed down and prices have been going downhill amid rising supply since 2023, long-term fundamentals remain solid for lithium, a critical mineral in the global transition to clean energy. The global demand for lithium is expected to experience exponential growth due to the accelerating adoption of electric vehicles (EVs) and renewable energy storage solutions. Lithium is expected to become increasingly valuable as the global push for clean energy and EVs accelerates.
As governments push for carbon neutrality, EV adoption has surged, driven by both policy initiatives and consumer demand. Demand for Lithium, a core component of EV batteries, is expected to accelerate on the back of significant global EV adoption driven by government mandates and consumer preference for greener alternatives. The increasing adoption of lithium-ion batteries in energy storage systems also contributes to this demand surge. Lithium Americas is well-positioned as a significant player in the lithium space to benefit from this trend.
Thacker Pass: The Fulcrum of LAC Stock’s Prospects
Lithium Americas remains committed to developing the fully owned Thacker Pass project located in Humboldt County in Nevada, which hosts the largest known measured and indicated lithium resource in North America. LAC is focused on advancing Thacker Pass, its only material mining project and most significant growth opportunity, toward production. Initial construction of the project commenced in March 2023. LAC targets a nameplate production capacity of 40,000 tons per annum (tpa) of battery-grade lithium carbonate during Phase 1. In the second phase of production (Phase 2), it targets an additional 40,000 tpa, for a total production capacity of 80,000 tpa.
Thacker Pass is one of the largest known lithium deposits in the United States and is crucial for reducing the reliance on foreign lithium suppliers. The U.S. government has shown strong support for domestic lithium production, which is crucial for national security and the development of EV infrastructure. With the increasing focus on developing domestic lithium supply chains in the United States, Thacker Pass could play a vital role in securing the U.S. lithium supply. LAC is expected to benefit from government backing in the form of favorable regulatory frameworks and support for domestic lithium production, given the growing recognition of lithium’s strategic importance. Thacker Pass is expected to support lithium needs for up to 800,000 EVs annually.
Strong Financial Backing for Lithium Americas
Lithium Americas is committed to engaging with several stakeholders to develop Thacker Pass responsibly. On Oct. 28, 2024, LAC and the U.S. DOE’s Loan Programs Office closed a $2.26 billion loan under the Advanced Technology Vehicles Manufacturing Loan Program to finance the construction of the processing facilities at Thacker Pass, marking a significant milestone.
In January 2023, General Motors announced a $650 million equity investment in Lithium Americas to assist the latter in constructing and developing Thacker Pass. The first part of this two-tranche investment was completed in February 2023. In August 2023, General Motors and Lithium Americas postponed a $330 million second-tranche investment to explore alternative investment structures.
On Oct. 16, 2024, GM and LAC entered into a new agreement to set up a joint venture, under which the automaker will supply $625 million in cash and credit to LAC for Thacker Pass. GM will hold a 38% stake in Thacker Pass. The investment includes an initial $330 million cash contribution at JV closing, $100 million at a final investment decision for Phase 1, and a $195 million letter of credit before accessing a $2.3 billion DOE Loan. The JV Transaction replaced the $330 million two-tranche investment commitment from GM under its original investment agreement.
GM also agreed to extend its existing offtake agreement for up to 100% of production volumes from Thacker Pass Phase 1 to 20 years and will also enter into an additional 20-year offtake agreement for up to 38% of production volumes from Phase 2 upon closing of the JV.
The DOE loan and GM’s investment will provide the bulk of the required capital to fund Thacker Pass Phase 1 construction. Thacker Pass Phase 1 production is targeted to commence in 2027. In late April 2024, LAC completed a $275 million equity offering, which it expects to use in advancing the Thacker Pass construction.
Project Delays May Impact LAC’s Prospects
Lithium Americas is yet to generate revenues from operations and relies on equity and other financings to fund operations. LAC is heavily dependent on the successful development of Thacker Pass and bringing it into production. Production from Thacker Pass is also not expected to ramp up until 2028. A potential delay or setback will significantly impact the company’s prospects.
Lithium Americas’ Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for LAC has been revised downward over the past 60 days. The consensus estimate for 2025 has also been revised lower over the same time frame.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
LAC Stock Underperforms Industry and S&P 500
LAC’s shares have lost 38% year to date, underperforming the industry’s 14.2% decline and the S&P 500’s rise of 25.4%. A couple of key players in the lithium mining space, Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) have lost 25% and 36.5%, respectively, this year, reflecting the significant decline in lithium prices due to slowing demand growth for EVs, inventory glut and increased supply.
LAC’s YTD Price Performance
Final Thoughts: Hold Onto LAC Stock
Lithium Americas presents an attractive investment opportunity driven by exposure to the growing demand for lithium across various industries. As the world transitions from fossil fuels to electrification, LAC is well-placed to capitalize on this transformation as a supplier of this critical material, making it worth considering for long-term growth. Investors seeking to capitalize on the booming demand for lithium can gain early exposure to a company that is set to play a crucial role in meeting the world’s future energy needs. However, there remain risks around the successful completion of the Thacker Pass project. Declining earnings estimates also cast a pall on the company's prospects. Therefore, holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.