The U.S. Department of Energy has unveiled plans to provide Lithium Americas (LAC.TO) with a loan of up to $2.26 billion to facilitate the construction of Nevada's Thacker Pass lithium project. This move marks one of Washington's most substantial investments in the mining sector to date, aligning with efforts to bolster domestic production of critical minerals essential for the energy transition.

The loan, announced by Lithium Americas on Thursday, serves as a cornerstone of U.S. President Joe Biden's agenda to reduce reliance on lithium imports from China, the world's leading processor of this crucial battery metal. Anticipated to commence operations later in the decade, the Thacker Pass mine is positioned to become a primary supplier to General Motors.

Following the loan announcement, Lithium Americas' U.S.-listed shares surged by 4.5%, closing Thursday at $5.99. Intraday trading saw an increase of over 20%.

Initial construction activities at the site, located just south of Nevada's border with Oregon, commenced in March 2023 subsequent to the resolution of a protracted legal battle against conservationists, ranchers, and Indigenous communities. With the loan's closure expected later this year post final environmental assessments, Lithium Americas, headquartered in Vancouver, plans to commence major construction, a process slated to span three years. The mine's inaugural phase aims to yield 40,000 metric tons of battery-grade lithium carbonate annually, sufficient for powering up to 800,000 electric vehicles.

However, the project's estimated cost has risen from an initial projection of $2.27 billion to nearly $2.93 billion. This escalation is attributed to heightened engineering expenses, an agreement to utilize unionized labor, and the decision to construct housing facilities for workers and their families in the remote locale.

Under prevailing U.S. regulations, the allocated funds can be allocated to processing facilities rather than the actual excavation of the open-pit mine. The combined impact of the DOE loan and GM's $650 million investment, made last year, rendering it the largest shareholder in Lithium Americas, is anticipated to cover a substantial portion of the project's first phase expenses, as per company statements.

Lithium Americas perceives a significant opportunity to spearhead the forthcoming phase of global electrification. Targeting full operational capacity by 2028, the project aims to ultimately produce 80,000 metric tons annually. The extraction of lithium at Thacker Pass from a vast clay deposit represents a pioneering endeavor on a commercial scale.

To extract lithium from the clay, the company plans to import sulfur for the production of sulfuric acid. As part of the mine's infrastructure development, Lithium Americas intends to establish a rail terminal approximately 60 miles from the mining site to facilitate the importation of sulfur and other necessary materials.

The DOE loan, sanctioned under the Advanced Technology Vehicles Manufacturing loan program, encompasses an estimated $290 million in accrued interest over a three-year period.

While the project has garnered support from certain Indigenous communities in the region, including the Fort McDermitt Paiute Shoshone Tribe, it faces staunch opposition from ranchers and conservationists who fear adverse impacts on local water supplies and ecosystems.

Last year, the DOE extended its first loan to a U.S. lithium firm, offering up to $700 million to Ioneer (INR.AX) for its Rhyolite Ridge lithium project located approximately 200 miles north of Las Vegas.