Lithium Americas: Thacker Pass Approved, Now Look South For Production (NYSE:LAC)

The Lithium Americas Corp. (NYSE:LAC) Thacker Pass saga has been a long time coming. And finally, we have a court decision giving the company permission to begin construction. This decision should hopefully let up the biggest unknown weighing on Lithium Americas’ stock and let its story finally allow it to soar.

A Contested Approval Finally Allowed

The ruling from the U.S. District Court of Nevada is explained in a 49-page decision (and here by our own Austin Craig who was faster to the typewriter than me for this story). Essentially, the decision rejects all of the plaintiff’s claims that would call for the Bureau of Land Management (“BLM”) to revoke the project’s permits and asks BLM and Lithium Americas to determine whether the company can be allowed to dump waste rock on BLM lands if those lands themselves do not contain valuable lithium.

In sum, the Court concludes that BLM’s decision as it relates to approval of land to be used for waste dumps violated FLPMA (43 U.S.C. § 1732(B)) and is therefore arbitrary and capricious under the APA. But the Court otherwise rejects Plaintiff and Plaintiff-Intervenors’ claims.

This should be a relatively simple question to resolve, as Lithium Americas already knows the claim that it staked and has experience surveying and drilling the area; proving another portion of it to be lithium-bearing for the BLM should be no more than a small inconvenience.

So what does this all mean? Well, the court case is finally over. This is the singular event that has been most anticipated by North American lithium investors for the past few years. Construction can be expected to begin soon, with the first production from the site expected in 2026.

There is still a chance of appeal, but it is unlikely that an appeal would result in another stay order for construction, and the legal grounds for appealing would be unlikely to yield a different ruling, in my view.

What Now?

Well, the court ruling has been holding down LAC stock for a long time, and the favorable decision has led its shares to rise by 10% today, as of writing. This relieved pressure may also result in a further short squeeze, with 10% of the float being held short at the moment, as much of the case against Lithium Americas hinged on an unfavorable court ruling.

Lithium Americas is also in the process of separating its North and South American segments, expected in the third quarter of 2023. Both of these segments have strong project pipelines and capital backing. The South American segment is about to be rolling in cash flow from production at Caucharí-Olaroz.

The site is expected to start production at a rate of 20,000 tonnes of lithium carbonate (LCE) per year. With a current lithium price of around $70,000 per tonne, this is equivalent to revenue of $1.4 billion per year from just this one site in early production. This is more than enough cash to develop other locations, such as Pastos Grandes, and further feasibility studies at other sites.

In North America, General Motors (GM) has agreed to provide additional financing, to the tune of $650 million, in two tranches, with the second being exclusive to the future North America segment.

GM has agreed to make an aggregate investment of $650 million in two tranches. In tranche 1, GM will acquire 15.0 million common shares of Lithium Americas (each, a “LAC Share”) at a price of $21.34 per share (the “Tranche 1 Subscription Price”), for gross proceeds of $320 million (“Tranche 1”). The funds from Tranche 1 will be held in escrow until certain conditions are met, as discussed in the Transaction Terms section below. If those conditions are met, the funds will be released to the Company and GM will own a 9.999% equity interest in Lithium Americas. Lithium Americas anticipates that the escrow release will occur by mid-2023. Following the Separation and the satisfaction of certain conditions, GM has agreed to subscribe for shares of Lithium Americas (NewCo) at the then market price on the date of subscription, subject to a cap of 130% of the Tranche 1 Subscription Price (adjusted for the Separation) in an amount equal to $330 million (“Tranche 2”).

With this capital backing in the U.S. and cash flow in the South, Lithium Americas future is looking bright. Lithium Americas Corp.’s biggest weakness, the pending court case, is now a thing of the past, and we can instead focus on its strong project pipelines for the future.