Lithium Miner Stock Jumps Again. What a U.S. Stake Could Look Like.

Lithium Americas created a new process to extract lithium from clay, which will be used in the proposed mining site at Thacker Pass. (Carolyn Cole / Los Angeles Times / Getty Images)

Key Points

About This Summary

• Lithium Americas’ stock increased 23% to $7.37, raising its market value to over $1.5 billion, following news of potential U.S. government involvement.
• Analysts suggest the U.S. government might receive warrants for 5% to 10% of Lithium Americas or its Thacker Pass project in exchange for loan renegotiation.
• Other potential scenarios include a purchase guarantee for 40,000 metric tons of lithium carbonate or a price floor to ensure project profitability.

The prospect of the U.S. taking a stake in Canadian miner Lithium Americas has everyone excited, even though no one’s quite sure how it might work.

After doubling Wednesday, the company’s stock rose another 23% Thursday to $7.37, lifting Lithium Americas’ market value to more than $1.5 billion.

As to the specifics of how a renegotiation of the Energy Department’s $2.3 billion loan might work, analysts at National Bank of Canada Financial Markets recently laid out their bets on the most likely scenarios—and which would be best for investors.

In the most likely scenario, Lithium Americas would issue warrants to the government representing 5% to 10% of either the company or its sole project at Thacker Pass in Nevada. Reuters previously reported that the company has already offered the warrants to the government at no cost. In return, Lithium Americas could get more time to pay back the loan, improving its cash flow. The warrant would give the government the right to buy stock at a future date at a preset price.

The second most likely option would involve a purchase guarantee on the 40,000 metric tons a year of battery-grade lithium carbonate that the refinery is expected to produce starting in 2028. That could work in a couple different ways. Lithium Americas’ partner General Motors , which owns around a third of the Thacker Pass project, could expand its commitment to buy the chemical compound that it currently plans to use in its Ultium battery cells powering its electric vehicles.

Alternately, there could be a set price floor to ensure sufficient revenue flow to keep the mine and processing plant afloat. That could involve the U.S. making up the difference between the actual sales price of the lithium carbonate produced and the price needed to ensure profitability. A floor price is important because lithium prices have fallen around 65% over the past two years, although they are expected to rise again as demand increases.

The least likely option, in the analysts’ assessment, is a premium equity offering. While it would provide an additional influx of funds and help to derisk the project, it would also dilute shareholder value. That would also be the least favorable outcome for investors.

Based on recent Trump administration deals with other companies such as Intel and rare-earth miner MP Materials , it’s also possible that a new agreement could involve some combination of all of the above, along with other stipulations such as the government having a say in how the project is run.

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