Analyst pours chilly water on red-hot Lithium Americas inventory

Lithium Americas Corp ($LAC) has been one of the hottest stocks in the world this week, gaining as much as 250% from Friday’s close to today’s peak but it’s slumped since the open, in part because an analyst at Scotiabank poured cold water on the investment thesis.

The saga started Tuesday on a report from Reuters saying that Trump’s administration was seeking a 10% stake in the company as part of a $2.26 billion loan in order to build its Thacker Pass lithium project in Nevada. General Motors also has a stake in the project, which would be one of the world’s largest.

“President Trump supports this project. He wants it to succeed and also
be fair to taxpayers,” a White House official told Reuters. “But there’s
no such thing as free money.”

The report itself isn’t necessarily good news as the terms of the loan were previously favorable and this could be dilutive.

Scotia analysts led by Ben Isaacson aren’t convinced that a doubling of the share price is justified.

“What makes this so remarkable, is that the US government would likely
receive a free-carry (in the form of warrants), which would be dilutive
to shareholders, in our view. If true, then the market is rewarding LAC
for a 10% reduction to its share of the pie, with no incremental value added by the U.S. government (beyond a slightly extended debt repayment time frame),” Scotia writes.

They have a target of $2.75 per share compared to $6.38 currently.

“We encourage clients to trim LAC exposure,” Scotia writes. “In short, we think Thacker Pass is world-class, and we have 100%
confidence it will be built, hopefully on time/budget. We also believe
investor expectations should remain within the bounds of reasonableness
provided by LAC’s latest technical report sensitivities.”

They suggest the market is pricing in Lithium America’s forecast future production at $19,600/mt, which they note is 90% above the two year average price and the $15,000/mt level most of the street is using. A solution might be to block off the US lithium market and push the price up but they note that GM owns 38% of the project and that would be hard for them to agree to.

Without changes in project economics “we can only chalk this up to irrational exuberance, for now,” Scotia says.

There is nothing more we would like to see than LAC’s value shoot to the moon.
However, it has to have support for us to be comfortable. When we see a
reason to justify >$19,000/mt LCE for LAC’s possibly reduced stake
in the project, then we’ll review our valuation, in line with the
sensitivity table above – no black boxes in our analysis. Until then, we
can’t recommend chasing the stock higher – as difficult as it is.

Shares of LAC are down 13.5% on teh day.