Lithium Americas Corp. (TSX: LAC) on Thursday released what must be considered a disappointing earnings report. The company does not yet generate revenue from its prospective lithium mining operations, so the explicit financial results are not as important as the increased capital spending budget announced for, plus what appears to be at least a slight production delay at, its flagship Cauchari-Olaroz lithium brine project in Argentina.
Lithium Americas owns 49% of Cauchari and China’s largest lithium company, Ganfeng Lithium, owns the balance, or 51%. Lithium Americas will operate the mine. Offtake agreements at market prices (which are very attractive) are in place for over 80% of Cauchari’s planned Stage 1 production.
For the second time in 7 ½ months, Lithium Americas increased Cauchari’s projected budget to US$852 million from US$741 million. (The budget was lifted in mid-March 2022 to US$741 million from US$641 million.) Lithium Americas blamed high inflation and foreign exchange issues for the higher projected spending.
Lithium Americas now expects early stage Cauchari production will begin in late 4Q 2022. Lithium Americas’ previous wording was that early-stage production would commence in late 2022.
| (in millions of US $) | 3Q 2022 | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 |
| Target Date for Cauchari-Olaroz First Production | Late Q4 2022 | Late 2022 | 2H2022 | 2H 2022 | Mid-2022 |
| Cauchari-Olaroz Construction Budget | $852 | $741 | $741 | $741 | $641 |
| Amount of Capital Expenditure Budget Spent – Period End | $724 | $653 | $605 | $565 | $519 |
| % of Budget Spent | 85% | 88% | 82% | 76% | 81% |
Despite the seeming delay, Lithium Americas’ share of Cauchari’s cash flow when it begins production, particularly when it achieves full production, could be quite substantial. According to a Feasibility Study and Mineral Reserve Estimate with an effective date of September 30, 2020, the project could produce 40,000 tonnes of battery-grade lithium carbonate for 40 years (Stage 1 production). Based on assumptions of long-term lithium carbonate prices and operating costs of US$12,000 per tonne and US$3,600 per tonne, respectively, the project could generate average EBITDA of around US$300 million per year. However, since lithium carbonate delivered to China currently trades in the vicinity of US$75,000 per tonne, Cauchari’s annual cash flow could potentially be multiples of US$300 million.
Lithium Americas has controlled its costs well as the build-out of Cauchari (fitfully) progresses. Its quarterly cash burn rate, defined as its operating cash flow deficit plus Cauchari-Olaroz capital expenditures, totaled about US$207 million over the twelve months ended September 30, 2022. In turn, Lithium Americas’ cash balance has deceased only moderately over the course of 2022, from US$511 million at year-end 2021 to US$392 million as of September 30, 2022. Debt (mostly convertible debt) was US$235 million at the end of the third quarter of 2022.
| (in thousands of US $, except for shares outstanding) | 3Q 2022 | 2Q 2022 | 1Q 2022 | 4Q 2021 | 3Q 2021 |
| Operating Income | ($25,262) | ($90,333) | ($15,999) | ($7,707) | ($16,640) |
| Operating Cash Flow | ($16,739) | ($16,242) | ($17,949) | ($16,466) | ($16,668) |
| Cauchari-Olaroz Capital Expenditures | ($26,950) | ($21,854) | ($7,350) | ($5,791) | ($23,609) |
| Cash – Period End | $392,213 | $440,821 | $492,347 | $510,607 | $482,142 |
| Debt – Period End | $235,012 | $212,601 | $290,220 | $264,071 | $172,372 |
| Shares Outstanding (Millions) | 135.0 | 134.6 | 134.4 | 120.8 | 120.0 |
Despite the disappointing Cauchari budget news, Lithium Americas could represent an interesting opportunity as its cash flow, bolstered by high lithium prices, could be significant when the mine begins production.
Lithium Americas Corp. last traded at $33.45 on the TSX Exchange.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
