VANCOUVER, British Columbia - Lithium Americas Corp. (TSX: NYSE:LAC) (NYSE: LAC) and General Motors Holdings LLC (NYSE:GM) have announced the formation of a joint venture to develop the Thacker Pass lithium project in Humboldt County, Nevada. The partnership aims to enhance the domestic supply chain for critical minerals, essential for electric vehicle (EV) batteries.
Under the new investment agreement, GM will invest $625 million, consisting of both cash and letters of credit, acquiring a 38% stake in the project. This investment replaces GM's previously planned $330 million equity investment, announced in January 2023, and complements GM's initial $320 million investment, which resulted in the acquisition of approximately 15 million shares of Lithium Americas.
The joint venture transaction is designed to support the construction of Thacker Pass, with GM contributing $430 million in direct cash funding and a $195 million letter of credit facility. The latter will serve as collateral for reserve account requirements under a conditional $2.3 billion loan from the U.S. Department of Energy (DOE), announced earlier this year.
Lithium Americas will retain a 62% interest in Thacker Pass and will manage the project. The company has committed $387 million to the joint venture, aligning with its ownership percentage. As of June 30, 2024, Lithium Americas reported approximately $376 million in cash and cash equivalents.
The collaboration extends GM's existing offtake agreement from Phase 1 of Thacker Pass to 20 years and includes an additional 20-year offtake agreement for up to 38% of Phase 2 production volumes. GM also maintains a right of first offer on the remaining Phase 2 volumes.
Jonathan Evans, President and CEO of Lithium Americas, emphasized the strengthened relationship with GM through this joint venture, which aligns with their mutual goal to develop a robust domestic lithium supply chain. Jeff Morrison, SVP of Global Purchasing and Supply Chain at GM, highlighted the strategic importance of sourcing lithium domestically to manage battery cell costs and support the EV material supply chain.
The joint venture transaction is subject to certain conditions, including the finalization of the DOE loan agreement. Lithium Americas and GM are targeting the final investment decision by the end of the year, following the closing of the DOE loan and the joint venture transaction.
The details of this partnership are based on a press release statement from Lithium Americas Corp.
In other recent news, Lithium Americas Corp. has seen several significant developments. The company has extended its investment deadline with General Motors until December 31, 2024, for the second tranche of $330 million, supporting the Thacker Pass project. This development follows the successful raise of $263 million in net proceeds from an April offering, meeting financial requirements for the investment and the anticipated $2.26 billion loan from the Department of Energy, both expected to be finalized in the latter half of 2024.
In addition, Lithium Americas has undergone a series of analyst adjustments. Deutsche Bank (ETR:DBKGn) revised its price target for the company to $2.50, maintaining a hold rating, while TD Cowen continues to support the firm with a buy rating and a $5.00 price target. Scotiabank reduced its price target to $3.00, maintaining a sector perform rating, and Piper Sandler initiated coverage with a neutral rating and a $3.90 price target.
On the international front, a senior U.S. official accused Chinese lithium producers of saturating the global market, leading to significant price drops. The price drop has led to a halt in operations at some mines in China, such as CATL, and has impacted global producers and the development of diverse supply chains. These recent developments provide a snapshot of some of the recent changes impacting Lithium Americas Corp. and the broader lithium market.
InvestingPro Insights
As Lithium Americas Corp. (LAC) and General Motors forge ahead with their joint venture for the Thacker Pass lithium project, investors should consider some key financial metrics and insights from InvestingPro.
LAC's market capitalization stands at $584.59 million, reflecting the market's current valuation of the company. This figure takes on new significance in light of GM's substantial $625 million investment in the Thacker Pass project, which values LAC's 62% stake considerably higher than the current market cap suggests.
An InvestingPro Tip highlights that LAC "holds more cash than debt on its balance sheet," which is crucial for the company's ability to meet its $387 million commitment to the joint venture. This strong liquidity position is further supported by another tip indicating that "liquid assets exceed short term obligations," providing LAC with financial flexibility as it moves forward with the project.
However, investors should note that LAC is "quickly burning through cash," according to another InvestingPro Tip. This burn rate could be attributed to the ongoing development costs of the Thacker Pass project and underscores the importance of the GM partnership and potential DOE loan in securing the project's future.
The stock's recent performance has been mixed, with a "strong return over the last month" of 12.18%, contrasting sharply with a significant decline of 71.38% over the past year. This volatility reflects the challenges and opportunities in the lithium market and the transformative potential of the Thacker Pass project.
For those interested in a deeper analysis, InvestingPro offers 12 additional tips for LAC, providing a more comprehensive view of the company's financial health and market position.
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