Lithium Americas Corp (OTCMKTS:LACDF) Gets Another Look

Lithium Americas Corp (OTCMKTS:LACDF), the company developing one of North Americas' largest lithium deposits in northern Nevada, provided positive results last week about its Feasibility Study ("Stage 1 DFS") on the Cauchari-Olaroz lithium project in Jujuy province, Argentina.

Keeping in mind the reaction of the share price, market participants seem to have appreciated this information. Take a look:

Source

Do you want to know more about the new project?

The press release highlighted the following key facts about this new project, which we believe were responsible for the jump in the price of the shares:

• "Average annual production of 25,000 tonnes of battery-grade lithium carbonate over a 40-year project life
• Estimated construction capital cost of $425 million, before working capital and value-added taxes ("VAT")
• Average operating costs of $2,495/t of battery-grade lithium carbonate produced
• Average annual EBITDA of $233 million, after-tax NPV of $803 million (at a 10% discount rate) and after-tax IRR of 28.4% assuming a price of $12,000/t of battery-grade lithium carbonate sold
• Creation of at least 260 permanent jobs during the 40 years of operations and employment of at least 800 people during the 2-year construction period
• Government confirmation of all necessary permits to commence construction and operate
• Construction expected to commence in the first half of 2017 with production starting in 2019" Source

According to the communication, the project, "Cauchari-Olaroz", is owned by a company called Minera Exar S.A., which is a joint venture between Lithium Americas and Sociedad Quimica y Minera de Chile S.A. The project is expected to produce 50,000 tons per annum of battery-grade lithium carbonate in two stages, which will deliver half of the production in each stage. In this press release, the company informed about the feasibility study of the first stage and released the following information that summarizes the project:

Table 1: Cauchari-Olaroz Stage 1 DFS ResultsStage 1 DFSLithium carbonate price$12,000/t Li₂CO₃Average annual production25,000 tpa Li₂CO₃Expected project life40 yearsProject capital costs$425 millionOperating costs$2,495/t Li₂CO₃Average annual EBITDA$233 millionPre-tax NPV 10% discount$1,266 millionAfter-tax NPV 10% discount$803 millionPre-tax IRR34.0%After-tax IRR28.4%Payback period3 years, 5 monthsSource

From this table, we highlight the fact that the company may provide an after tax investment rate of return of 28.4%. However, we need to remind investors that high returns are provided in general by companies that engage in projects that involve high risk. If you do not understand these financial concepts, we encourage you to contact your financial advisor.

The Province of Jujuy has approved the project

In the same press release, it was stated that Minera Exar obtained the approval document, the "Environmental Impact Statement permit", from the Province of Jujuy in Argentina on July 11, 2012. In addition, it was communicated that the company that operates the project has granted a right to Jujuy Energia y Mineria Sociedad del Estado, owned by the state, to acquire 8.5% equity interest in Minera Exar and to provide management services.

We believe that these documents and business connections are a good proof of the good relations with the Province of Jujuy as well as the state of Argentina, which is always a key factor while operating commodity businesses in South America.

Do Lithium Americas have the resources to engage in this project?

We found the consolidated balance sheet of Lithium Americas on its website in order to bring some more information to our readers about the financial resources of the company. We would like to highlight the following key financial figures that were disclosed as of December 31, 2016 (Expressed in thousands of US dollars):

The most important assets that we found were the following:

• Cash and cash equivalents: $8,056
• Inventories: $10,399
• Property, plant and equipment: $18,502
• Exploration and evaluation assets: $13,136
• Investment in Joint Venture: $13,136
• Total Assets: $45,301

We did not find substantial liabilities in the report:

• Obligation under finance leases: $1,806
• Long-term borrowing: $833
• Total liabilities: $2,878

However, we found that the balance sheet is mostly financed by money given by shareholders:

• Share capital: $108,670
• Deficit: ($76,071)
• Total Equity: $42,423

Since the deficit amount and liabilities are low, the company seems to be a newly created structure. An investment in this kind of company may have some risks since it is not very well know and it does not provide a business history. However, it is also true that the company does not have obligations, so the financial risk is quite low at this point in time.

In any case, we believe that investors should make substantial due diligence in this firm, and its founders before engaging in any investment. We will be providing information about the new business adventures of this firm in our newsletter, so if you are considering an investment here, consider a subscription to it.

Conclusion

We believe that Lithium Americas is delivering very interesting news to the market and investors are liking what they're heading. The share price is reacting and may continue to do so. The new project in Argentina is promising outstanding investment returns. Also, it seems that the investors believe that the project will be a success. In addition, we believe that the company may be able to finance this project since its balance sheet shows more assets than liabilities, and these assets are financed by shareholders and not by debt holders. Bottom line: the company is able to raise capital from shareholders.

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Disclosure: We have no position in LACDF and have not been compensated for this article.