Argentina Project by Lithium Americas Reports Inaugural Production, Impacting Earnings

After factoring in Lithium Americas' LAC second-quarter earnings into the model, the assessment remains steady with a fair value estimate of $50 per share (CAD 67) and a no-moat rating. The current stock prices underscore the considerable undervaluation of Lithium Americas' shares, offering a promising prospect for potential investors. Trading well below half of the calculated fair value and entering the domain of 5-star evaluation, the stock's present valuation appears to hold substantial promise.

The official announcement marks the initiation of lithium carbonate production by the Cauchari-Olaroz joint venture, Lithium Americas' maiden project in collaboration with Ganfeng. The anticipated volumes for 2023 are modest, around 5,000 metric tons. However, a robust upsurge in production is expected to materialize by mid-2024. The initial phase is expected to yield lithium carbonate of lower quality, potentially trading at levels below those seen in China's spot market. Despite this, the overall outlook remains optimistic regarding the venture's long-term viability. Furthermore, improvements in product quality are anticipated to evolve over time.

A recent downward trend in lithium spot prices prompts an analysis that suggests a prospective increase in prices by the close of the year. This projection is driven by the surge in demand, outpacing the growth of supply. The predicted deficit in the lithium market's equilibrium by the end of 2023 is fueled by the escalating sales of electric vehicles and the extended deployment of energy storage systems. These systems are crucial for sustaining renewable energy generation, bolstering an optimistic projection for market demand. The anticipation of a demand surge, tripling to 2.5 million metric tons by 2030 from the baseline of 800,000 in 2022, underscores the likelihood of a supply deficit. As a result, prices are expected to maintain levels exceeding the marginal costs of production. Projections point to average prices spanning the mid-$30,000 per metric ton range from 2023 to 2030.

A pivotal development is the formal announcement by Lithium Americas regarding the approval of its division into two distinct entities by shareholders on July 31. One entity, established in the United States, is set to retain the name Lithium Americas and oversee the Thacker Pass project situated within the U.S. The issuance of shares for this newly established entity will be allocated to current shareholders. Concurrently, the existing company is poised to undergo rebranding as Lithium Argentina, preserving the two projects located in Argentina. The division's completion is slated by the end of the year, serving as a strategic maneuver aimed at enhancing operational focus and capitalizing on distinctive project prospects.