Why a U.S. Stake in Lithium Americas May Not Be a Good Deal for the Canadian Miner

Lithium Americas’ Thacker Pass, Nevada, lithium mine site. (Dreamstime)

Key Points

About This Summary

• The Energy Department’s offer to take a stake in Lithium Americas’ mine project caused its shares to double overnight.
• The U.S. government is seeking an up to 10% ownership stake in the project. The company, based in Canada, is valued at $737 million after a 96% share increase.
• Thacker Pass, a joint venture with General Motors, is projected to produce eight times more lithium carbonate than Albemarle’s current mine in Nevada.

The Energy Department’s offer to take a stake in what is expected to be the largest lithium mining and processing operation in the U.S. caused shares of Lithium Americas , the project’s majority owner, to double overnight.

But that market euphoria doesn’t necessarily mean Lithium Americas—or its investors—is getting a good deal. While a U.S. stake would reduce the chance of the project failing to get off the ground, the Energy Department hasn’t indicated that it is offering to provide any additional capital beyond the existing $2.26 billion loan finalized by the Biden administration last year. Instead, it is agreeing to start disbursing funds it already agreed to pay out.

“The government has asked for a 5-10% free stake in LAC or the project,” Joel Jackson of BMO Capital Markets, wrote on Wednesday in a research note. That dilutes share value for anyone else looking to gain from the stock’s momentum.

Under the terms of the loan agreement finalized last year, Lithium Americas has 24 years to pay back funds used to build out operations at Thacker Pass in northern Nevada near the Oregon border. It’s a joint venture with General Motors , which owns 32% of the project and has first dibs on any lithium carbonate that gets produced. If all goes as planned, the plant will start producing battery-grade lithium carbonate used to power everything from smartphones to submarines by 2028.

Another question is why the U.S. is looking to change the terms of the deal in the first place. “We view concerns over LAC being able to repay the loans, particularly with GM as an offtaker as misplaced,” writes MacMurray Whale of Cormark Securities, who rates the stock a Buy. That makes the renegotiation of the loan terms “seem simply an attempt to profit from the low value placed on Thacker Pass today relative to the potential upside when operating.”

A Trump administration official told Barron’s that the “small equity stake” proposed by the federal government would give Lithium Americas more time to pay back the loan while offsetting risk for taxpayers. Reuters reported Tuesday that the government is seeking a 10% ownership stake in the company, which had a market value of $737 million after closing up 96% at $6 a share Wednesday.

Lithium prices have slumped in recent years as one of their main uses in electric car batteries has seen weakened demand amid an overall increased supply of the metal. China, which dominates production, has ramped up operations in recent years. The price on futures contracts for lithium carbonate tracked by CME have fallen 65% since July 2023. That has weighed on Lithium Americas’ stock price, making it a relative bargain.

The Trump administration is seeking to lessen the country’s dependence on foreign countries by boosting its own manufacturing and energy production. Lithium is considered a critical mineral for battery production. More than 50% of the lithium used in the U.S. in 2024 was imported, with much of it coming from Chile and Argentina.

Albemarle’s Silver Peak Mine, also in Nevada, is currently the only active lithium mine in the U.S., although others are in development. It produces about 5,000 metric tons of lithium carbonate a year. By comparison, Thacker Pass is expected to produce eight times that amount when it starts production.

Write to Anita Hamilton at anita.hamilton@barrons.com