Shares in Lithium Americas (NYSE:LAC) is up after it announced it will split into two separate businesses, one focused on South America and the other on North America. LAC stock rose by 2% overnight.
The South American entity will own a brine plant in Caucharí-Olaroz, Argentina that is nearing production. The North American entity will own a project in Thacker Pass, Nevada and other assets.
The pre-revenue miner reported a loss of $40.9 million, or 30 cents per share, on Oct. 27, with $392 million in cash.
What’s Going on With Lithium Americas?
As the company’s third-quarter report showed, results are being hit hard by the deteriorating Argentine currency and local inflation. This has increased expected costs to put the plant in operation by 15%, or about $111 million.
Getting the plant into production will now cost $63 million more, requiring an additional $31 million in funding. The separation will let Lithium Americas deal with the increased costs locally, without having to transfer them into expensive dollars before they’re reported to shareholders.
The North American operations are not nearly so far along. The company is still involved in pre-construction permitting and negotiations with the Shoshone tribe on sharing mine benefits.
Analysts remain high on the company’s prospects, due to the rising value of lithium for use in batteries. InvestorPlace’s Louis Navellier recently wrote the company’s two projects could deliver billions in revenue annually, leading the stock higher.
LAC stock had a great 2021, rising as high as nearly $39 per share. The harder market of 2022 has only taken part of that away, with shares down 23% this year. Shares are still up 121% over the last two years.
What Happens Next for LAC Stock
Buying LAC stock now lets investors benefit from the Argentine play, where production is approaching rapidly, while the Nevada operations are held up by optimism over lithium’s rising price.
You’re still speculating, however, that management can achieve meaningful revenue before it runs out of money. If Argentine production is delayed, the company will likely need to sell more stock. That’s also true in spades for the North American operations, which aren’t as far along.
On the date of publication, Dana Blankenhorn did not hold (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.
