Lithium Americas Is a Good-News, Bad-News Bet on the ‘New Oil’

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Not too long ago, a Wall Street Journal article called lithium the “new oil.” Among the most ambitious competitors in this space is Canada-based Lithium Americas (NYSE:LAC). LAC stock provides enterprising investors pure-play lithium-market exposure.

smartphone with logo of Canadian company Lithium Americas Corp on screen
Source: Wirestock Creators / Shutterstock.com

The “new oil” argument holds up well, as IHS Markit expects the lithium market’s size to more than double by 2025 from 2021’s prediction.

As Chris Berry, president of commodities advisory firm House Mountain Partners, explains, “This isn’t a false dawn like the lithium boom of 2016, which was characterized by fast money. There’s much more patient capital coming into the supply chain now.”

In other words, the lithium bull market of the 2020s is the real deal. Yet, Lithium Americas might or might not be the right mining business to bet on — so, let’s start our exploration with some technical analysis.

A Closer Look at LAC Stock

Is LAC stock in a bull market, or a bear market? The answer depends on your look-back period.

The bull thesis is certainly a strong one. Consider that the Lithium Americas share price rallied from $2 in March of 2020, to $41.56 in late November of last year.

That’s astounding, when you think about it.

On the other hand, LAC hasn’t performed well in the short term.

After topping out in November, the stock sharply corrected, hurtling toward $24 in late January 2022. Could this be the end of the long-term rally, and the start of a bear market?

Only time will tell, but it could be argued that LAC stock is a dip-buyer’s delight amid a robust lithium market. In the final analysis, it’s up to you to weigh the good, the bad and the ugly when assessing Lithium Americas’ value proposition.

One Commodity, Two Projects

Primarily, Lithium Americas focuses on two mineral assets. As you would expect, they’re both lithium-rich properties.

First, Lithium Americas has 44.8% ownership in the Cauchari-Olaroz project, which is located in Argentina. This project has annual production capacity of 40,000 tons of lithium carbonate.

Second, the company has a 100% stake in the Thacker Pass project. Located in Nevada, the Thacker Pass project has annual production capacity of 60,000 tons of lithium carbonate – pretty impressive, we must admit.

InvestorPlace contributor Chris MacDonald described Thacker Pass as Lithium Americas’ “crown jewel investors are focused on right now,” and possibly the largest lithium mine in America.

According to MacDonald, Native American tribes were looking to impose a legal injunction on the Thacker Pass project. Apparently, there were concerns related to land rights and the environment.

However, as it turned out, a judge denied a preliminary injunction on the Thacker Pass mine. So, that’s great news for Lithium Americas and its stakeholders.

Facing the Fiscal Facts

Thus far, we’ve highlighted the bullish case for an investment in Lithium Americas. To a certain extent, the bull thesis is predicated on the potential expansion of the lithium market.

We could also base an optimistic outlook on Lithium Americas’ two primary projects, which could be highly productive. Yet, informed investors can’t ignore the fiscal issues that Lithium Americas faces.

If you’re looking for a revenue-generating business to take a stake in, Lithium Americas doesn’t fit the bill. As the company admits, it “continues to develop its projects and does not generate revenues from operations.”

Naturally, no revenues from operations means no profits for Lithium Americas. That might be fine, if the company’s expenditures were minimal.

There may be issues in that regard, however. During 2021’s third quarter, Lithium Americas posted a net earnings loss of $17,213,000. That’s markedly worse than the prior-year quarter’s $6,485,000 net earnings loss.

The Bottom Line

Is Lithium Americas a worthy wager in 2022? It all depends on your perspective.

It certainly appears that the broader lithium market has expansion potential. Plus, Lithium Americas has interests in two highly prospective projects.

Still, the company’s financial stats are worrisome. Until Lithium Americas becomes a revenue-positive business, it’s going to be difficult to recommend a long position in LAC stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.


Article printed from InvestorPlace Media, https://investorplace.com/2022/02/lac-stock-is-a-good-news-bad-news-bet-on-the-new-oil/.

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