Lithium Americas: Production At Flagship Project Could Commence Before Year-End

In late July, Lithium Americas Corp. (TSX: LAC) reported 2Q 2022 results. The most important segment of the release was a refinement of the company’s mid-March disclosure that the flagship Cauchari-Olaroz lithium brine project in Argentina will start commissioning in the second half of this year. Indeed, in a slide in its investor presentation, Lithium Americas now expects “early-stage production” to begin later this year.

As of June 30, 2022, US$653 million, or 88%, of Cauchari’s US$741 million estimated construction costs were incurred. In mid-March, Lithium Americas increased the capital spending budget by 16% for the project (on a 100% basis) from the last estimate of US$641 million. Lithium Americas owns 49% of Cauchari and China’s largest lithium company, Ganfeng Lithium, owns the balance, or 51%.

When Cauchari commences production, particularly when it achieves full production, Lithium America’s portion of the cash flow 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. 

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$70,000 per tonne, Cauchari’s annual cash flow could potentially be multiples of US$300 million.  

(in millions of US $)2Q 20221Q 20224Q 20213Q 20212Q 2021
Target Date for Cauchari-Olaroz First Production(A)(B)(B)mid-2022mid-2022
Cauchari-Olaroz Construction Budget$741 $741 $741 $641 $641 
Amount of Capital Expenditure Budget Spent – Period End$653 $605 $565 $519 $471 
        % of Budget Spent  88%82%76%81%73%
(A) Stage 1 early-stage production expected to begin in late 2022. (B) Commissioning is targeted to begin in 2H 2022.

Lithium Americas also owns a 100% stake in the Thacker Pass lithium project in the U.S. state of Nevada. Federal court briefings on environmental groups’ appeal of the Bureau of Land Management’s approval of the project were scheduled to conclude August 11. Oral arguments and a final decision are expected to follow shortly thereafter. Quite logically, Lithium Americas will not make a final construction decision until it receives that ruling. Thacker Pass may have sufficient resources to produce 60,000 tonnes of battery-grade lithium carbonate per year for 46 years.

An interesting note in Lithium Americas’ 2Q 2022 earnings release was that it “continues to explore a separation of its U.S. and Argentina operations.” If the company were to receive a constructive Thacker Pass court ruling, this could potentially increase shareholder interest and shareholder value, as the potentially strong cash flow of the Argentina part of the business would not be blurred by required investments in the Nevada project. The U.S. piece would strictly encompass an approved lithium development project (Thacker Pass).  

Lithium Americas has controlled its costs well as the build-out of Cauchari progresses. Its quarterly cash burn rate, defined as its operating cash flow deficit plus Cauchari-Olaroz capital expenditures, totaled only about US$125 million over the twelve months ended June 30, 2022. In turn, Lithium Americas’ cash balance has remained approximately constant throughout 2021 and the first half of 2022 at about US$500 million; as of March 31, 2022, it was US$441 million. Debt (mostly convertible debt) declined to US$213 million in the second quarter of 2022.

(in thousands of US $, except for shares outstanding)2Q 20221Q 20224Q 20213Q 20212Q 2021
Operating Income($90,333)($15,999)($7,707)($16,640)($13,043)
Operating Cash Flow($16,242)($17,949)($16,466)($16,668)($8,631)
Cauchari-Olaroz Capital Expenditures($21,854)($7,350)($5,791)($23,609)($14,700)
Cash – Period End$440,821 $492,347 $510,607 $482,142 $505,241 
Debt – Period End$212,601 $290,220 $264,071 $172,372 $153,729 
Shares Outstanding (Millions)134.6134.4120.8120.0119.9

Lithium Americas’ shares have roughly doubled since the summer of 2021 as investors have embraced the stocks of lithium producers and developers. It is of course possible this optimism may ebb, causing the shares to at least partially reverse.

Lithium Americas’ Cauchari-Olaroz project could begin to generate substantial cash flow late this year, perhaps multiples of US$300 million of EBITDA on an annualized basis. If investors maintain a constructive view of lithium producers, Lithium Americas shares could get a boost over the coming months as the market factors in the start of lithium production.

Lithium Americas Corp. last traded at C$39.69 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.

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