On May 5, Lithium Americas Corp. (TSX: LAC) reported 1Q 2022 results. The most important segment of the release was an affirmation 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.
As of March 31, 2022, US$605 million, or 82%, of Cauchari’s US$741 million estimated construction costs had been incurred. In mid-March, Lithium Americas increased the project’s capital spending budget by 16% (on a 100% basis) from the last estimate of US$641 million. The previous estimate was introduced in May 2021 and reaffirmed several times during 2021, most recently in mid-November.
| (in millions of US $) | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 | 1Q 2021 |
| Target Date for Cauchari-Olaroz First Production | (A) | (A) | mid-2022 | mid-2022 | mid-2022 |
| Cauchari-Olaroz Construction Budget | $741 | $741 | $641 | $641 | $641 |
| Amount of Capex Budget Spent – Period End | $605 | $565 | $519 | $471 | $426 |
| % of Budget Spent | 82% | 76% | 81% | 73% | 66% |
Various factors were cited for the increase including engineering modifications and inflationary cost pressures. Lithium Americas owns 49% of Cauchari and China’s largest lithium company Ganfeng Lithium owns the balance, or 51%.
The timeline to production for the project has been pushed to the right by what appears to be a period of several months. From March 2021 until March 2022, the company had been “targeting first production by mid-2022.”
Much more constructively, these delays should not diminish the economic potential of Cauchari. 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.
Lithium Americas also owns a 100% stake in the Thacker Pass lithium project in the U.S. state of Nevada. It appears that a U.S. District Court judge may not rule on the appeals of the U.S. Bureau of Land Management’s January 2021 approval of the Nevada project until 3Q 2022. Last fall, there was a general expectation that the court may issue a ruling in early 2022. 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.
Lithium Americas has controlled its costs well as the build-out of Cauchari-Olaroz progresses. Its quarterly cash burn rate, defined as its operating cash flow deficit plus Cauchari-Olaroz capital expenditures, totaled only about US$111 million over the twelve months ended March 31, 2022. In turn, Lithium Americas’ cash balance remained approximately constant throughout 2021 and into 2022 at about US$500 million; as of March 31, 2022, it was US$492 million. Debt (mostly convertible debt) rose moderately in the first quarter of 2022, reaching US$290 million at March 31, 2022.
| (in thousands of US $, except for shares outstanding) | 1Q 2022 | 4Q 2021 | 3Q 2021 | 2Q 2021 | 1Q 2021 |
| Operating Income | ($15,999) | ($7,707) | ($16,640) | ($13,043) | ($8,759) |
| Operating Cash Flow | ($17,949) | ($16,466) | ($16,668) | ($8,631) | ($11,416) |
| Cauchari-Olaroz Capex | ($7,350) | ($5,791) | ($23,609) | ($14,700) | ($16,170) |
| Cash – Period End | $492,347 | $510,607 | $482,142 | $505,241 | $514,205 |
| Debt – Period End | $290,220 | $264,071 | $172,372 | $153,729 | $134,961 |
| Shares Outstanding (Millions) | 134.4 | 120.8 | 120.0 | 119.9 | 119.9 |
Lithium Americas’ shares have roughly doubled since last summer as investors have embraced the stocks of lithium and other electric vehicle (EV) battery metals producers and developers. It is of course possible this optimism may ebb, causing the shares to at least partially reverse.
Even though it may be a few months later than expected, 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 timing of the mine’s opening.
Lithium Americas Corp. last traded at C$31.60 on the TSX Exchange.
Information for this briefing was found via Edgar and the sources 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.
