Lithium Americas: Shares Plunge on Equity Issuance

Key Morningstar Metrics for Lithium Americas

• Fair Value Estimate: $12.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

Lithium Americas LAC announced plans to issue up to 63.25 million shares, including underwriter options, which is nearly 38% of shares outstanding as of Dec. 31, 2023. The offering will be issued at $5 per share. The equity raise is necessary, as it will fully fund the phase 1 capital expenditures for the Thacker Pass project. However, the price is highly dilutive to shareholders. Having updated our model to incorporate the equity issuance, we reduce our fair value estimate for Lithium Americas to $12 per share from $18. We maintain our no-moat rating.

The proceeds will allow Lithium Americas to meet an equity requirement to secure its $1.97 billion loan from the US Department of Energy and a General Motors tranche 2 equity issuance of $330 million. Combined with the $196 million in cash on its balance sheet as of Dec. 31, 2023, the company should have enough proceeds to fully fund the first phase of construction of the Thacker Pass project. Management estimates there is $2.74 billion in capex remaining.

As Lithium Americas generates no revenue, the equity issuance makes strategic sense to finance the project without additional debt. However, the firm will still need funding for operating expenses in 2025-27, until Thacker Pass begins ramping up production and generating revenue. Accordingly, the company could issue additional equity in the future.

Lithium Americas’ stock was down 26% at the time of writing. We view the shares as undervalued, trading well below our updated fair value estimates. With the project essentially fully financed, we think shares will begin to move based on lithium market sentiment and price movements. Accordingly, we see higher lithium prices as a catalyst for the stock.