New Short-Term Lithium Americas Price Target With Demand Set to Grow
The firm controls one of the largest lithium deposits in the world with the commodity's price poised for a boost.
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Last week, Lithium Americas (LAC) released the firm's financial results for the third quarter. Note that I didn't say "earnings," quite simply because there weren't any.
The firm had operating losses to report, but not earnings. I previewed the event on November 3 here in this column, so the lack of both profits or even revenue were no surprise to readers. The size of the losses though, were a kick in the pants and probably contributed to the stock's nasty sell off that began at the top of the chart in mid-October and only now seem to be stabilizing.
For the three-month period ended September 30, Lithium Americas posted a GAAP EPS of -$0.83 on no revenue. Readers may recall that while no revenue generation was totally anticipated, Wall Street was looking for earnings of -$0.05 per fully diluted share. They only missed by $0.78. Way to go, guys. The truth is that of the net loss of $199.161 million, $190.432 million of that was due to losses on financial instruments measured at fair value. Operating expenses only added up to $9.704 million. Toss in transaction costs of $643,000 and non-operating income of $1.618 million and you get to the final score.
Statement of Cash Flows
For the period, Lithium Americas generated an operating cash flow of -$47.071 million. On top of that, the firm spent $525.669 million on mineral properties and traditional capital expenditures. That left free cash flow (burn) of $572.679 million. Obviously, the firm was in no position to return any capital to shareholders. The firm did raise $211.754 million in proceeds from the sale of convertible debt and production payment arrangements and another $100 million from the issuance of non-controlling interest.
This was not part of the quarter, but the firm did receive its first drawdown of $435 million on the highly publicized Department of Energy loan on October 20. This came after the October 7 amended the total loan amount to $2.23 billion and agreed to defer $184 million worth of scheduled debt service obligations over the first five years of the life of the loan. The loan is set to go for 23 years after the first draw.
Balance Sheet
As of September 30, Lithium Americas had $385.307 million in cash on the books and current assets of $388.627 million. Current liabilities add up to $103.116 million, which includes no short-term debt. Total assets amount to $1.452 billion, which is mostly mineral properties and equipment. Total liabilities less equity comes to $555.305 million, of which $386.985 million was in the form of the above-mentioned convertible debt.
My Thoughts
Is LAC a sure thing? Of course not. The firm already has convertible debt which will dilute the stock, if we're lucky. There are no sales just yet.
That said, the firm and what, in theory, it will produce is of national security-related importance. President Trump's Department of Energy is invested here, and my guess is that any Trump successors, regardless of party affiliation, would find this investment worthy. The firm's Thacker Pass property in Humboldt County, Nevada, is considered to be home to one of the largest lithium deposits in the world.
I am a little surprised that LAC seems to have found some support before filling the unfilled gap created back in September. I had expected a test of the 200-day SMA, but lithium prices themselves have shown some resiliency of late as Li Liangbin, CEO of Chinese producer Ganfeng Lithium, told investors that he sees demand for lithium growing 30% by next year.
I have been adding to my long position aggressively in this name and will do so down to that 200-day line. I have my average point of entry down to $5.10. The 50-day SMA would now be the pivot which would put my temporary target price at $7.25.
At the time of publication, Guilfoyle was long LAC equity.
