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174 Billion Reasons To Invest In Lithium

Austin Craig profile picture
Austin Craig
7.41K Followers

Summary

  • The U.S. government is going to invest $174 billion into EVs by 2030 via the infrastructure plan.
  • Lithium prices are blasting off, up 88%.
  • Volkswagen to build 6x 40 Gigawatt electric battery factories by 2030. This will fuel lithium demand.
  • Other companies (such as CATL) are also expanding EV battery production while Ford expands its EV capability.
  • At these prices, Lithium Americas is undervalued given the demand for lithium approaching.

Lithium Americas Blue Light Special

Sometimes Mr. Market is irrational and gives you quality companies on sale. I call these "blue light specials". For those that don't remember, K-Mart used to have a sale tactic where a siren would go off followed by "Attention K-Mart shoppers, attention K-Mart shoppers... on aisle 7" followed by a limited sale on an item.

Mr. Market does the exact same thing at times by giving you a limited sale. Great stocks like Lithium Americas (LAC) go on sale because humans (for the most part) engage in two practices. A) Avoiding risk due to fear and B) following the herd. Now at times A and B are very practical. I've dodged many a bullet in the market by stepping out of the way of a stampede of people bolting for the door of a hot stock only to buy in later at a cheaper price. On the flip side, you can beat the herd (usually) if you do your homework and get in on something simmering before the masses awake. Right now, you need to be doing your homework on lithium. The U.S. government's $174 billion infrastructure plan is going to electrify lithium stocks given time. Eventually the masses will awaken and we want to be in early before they are.Before we go any further this article is going to look at the macroview first and paint in broad strokes why lithium could be a good long term investment. With that said Lithium Americas is the focus of this article. Broad strokes first and then we narrow it down to the fearsome 5 lithium companies of which Lithium Americas is the leader.

174 Billion Reasons To Invest In Lithium

The U.S. Government is backing lithium via a $174 billion investment via:

"Enable automakers to spur

This article was written by

Austin Craig profile picture
7.41K Followers
"Never let formal education get in the way of your learning". - Mark Twain,,,You are here for one reason. You want "actionable Intelligence". If you wanted a history lesson on a company then Google is your friend. My aim is to provide intelligence that you can read, ponder, and then execute upon to make a profit or avoid a loss. A price of a stock is almost irrelevant. It is the last thing to consider when buying a stock. If you don't pay attention to management, financials (go back 3 years), the sector, global macros, your portfolio mix, along with risk/reward for capital used and the company news, you are ignoring all of the things that come before price. Price is mostly real-time sentiment. It is hardly ever a good indicator of value.People who only look at price will fail as investors, because price is a result of fundamentals, news, and sentiment. You have to learn to "take" from the market, if at all possible, make it give you what you want.Use targets, set limits, protect your capital with stops and if something changes fundamentally, review, review, review.You can't read too much. If it was easy everyone would be doing it. Now you have no reason to not get Alpha.

Analyst’s Disclosure: I am/we are long LAC, NTTHF, NNOMF, CYDVF, NRVTF, STLHF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We also own NLC (Neo Lithium) and NNO (Nano One) on the Canada exchanges. We own long calls in LAC. We have sold puts against LAC.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (232)

Value Kicker profile picture
Miranda Du (the judge in the Thacker Pass case) is the same hairbrained judge who ruled against Amarin. She is a liberal appointed by Obama and therefore a secret lefty.
Expect an adverse ruling. Sell your LAC immediately !
tufttugger profile picture
@Value Kicker That's what appeals are for.
Value Kicker profile picture
@tufttugger Judges decisions rarely get overturned. Expect a long process then to drag on forever
Austin Craig profile picture
I published a new lithium article. seekingalpha.com/...
R
@Austin Craig

LAC
stockcharts.com/...
Seems determined to collide with $11.20 expect a bounce there, to up run? Who knows. Sure making you wait.!!

Did you clear your old stuff and reset?
Austin Craig profile picture
@RUBYRUBY3 I'm holding all my lithium and adding via selling puts mostly. Added a ton of NTTHF.
R
@Austin Craig
There is no way your wrong on Li do you have E car stats?
At some point they have to take off
Austin Craig profile picture
@RUBYRUBY3 Its growing fast. Basically this is a long term play. The politicians are in bed with it. The environmentalists are on board w/ it b/c they know its a money maker or they believe the propaganda.
Too much money to be made.
Austin Craig profile picture
And this kids is why you do not invest in Chile.

www.zerohedge.com/...
A. Paul Gill profile picture
@Austin Craig @Austin Craig Please have a look at Lithium Triangle North - seekingalpha.com/...
R
@Austin Craig

LAC
stockcharts.com/...

Still not turn upon the SMA lines here new targets down at $11 area

When you consider the electric car gold rush coming investors are really holding off but cars in general are screwed up.

Dropped a line here so you can get it cheaper if you still averaging in
Austin Craig profile picture
@RUBYRUBY3 I think its a combination of things.

1. Company dumping 500 million in the market.
2. Financiers selling that 500 million while shorting it.
3. Chip shortage for cars --might-- be inpacting the EV sector some.

On the flip side:

1. Lithium prices on the rise

So I really like lithium and I'm selling the $12.50 LAC puts to cost average down and / or get paid.

Its just a waiting game.

My only concern is inflation / interest rates paired up w/ an S&P500 that has a very high PE ratio. This gives me concern.
R
@Austin Craig
$UST30Y target only 3% not historically high but lemmings gotta run
stockcharts.com/...
b
Why is it that everyone I look at this, it’s down another 5%. Biggest holding and this is brutal
R
@bilbobaggins
Wait for this to turn up before buying, sorry bit late for you
LAC
stockcharts.com/...

My comment from Apr 2: Price just cracked the low I did not want it to fall below:
"These charts help to stop deployment of money in down trends and not before an uptrend starts ( I don't day trade or fish and hope for bottoms, get the trend and run right and you will do just fine )
LAC
Traditional weekly ( PO $3 is worst case if trend continues based on last max height above the trend line)
stockcharts.com/...
Traditional daily ( Fighting to break down trend expect down from here.
Do not want to cross the $13.50 lines that sets up a bigger fall."

Repost of the Chart from Apr 2 ( it did not break the up trend from then )
stockcharts.com/...

Using these charts keep you out until uptrend develops
Austin Craig profile picture
@bilbobaggins I think its a combination of things.

1. LAC pushed 500 million into the market via funding. What I've seen in the past a company does this, sells the stock at a discount. Then the buyers who got it at a discount dump it instantly making $$$ and short it.

2. Entire lithium market did secondary offerings for $$$.

3. Lithium is cold at the moment. Dumb money chasing crypto garbage and Gamestop trash.

4. Markets been wonky since someone assumed power.

5. Short term = painful, long term given the catalysts and demand coming its a no brainer.

I'm just nibbling a little bit here and there.

NTTHF announced some good news recently and I put out an article on STLHF that lists new catalysts for lithium demand.
j
@Austin Craig hazard a guess as to when the upswing begins again? Q3 2020? Q4? Do we have to wait until next year? Just your best guess, no pressure.
Austin Craig profile picture
The most boring lithium stock on the entire stock market. seekingalpha.com/...
l
Plentyart77
What about the biggest and potentialy richest lithium deposit in the world.It's owned by a company called Premier African Minerals and is located in Zimbabwe, check it out.
Austin Craig profile picture
@lithman Per yahoo fiannce.

Balance Sheet
Total Cash (mrq) 37k
Total Cash Per Share (mrq) 0
Total Debt (mrq) 1.25M
Total Debt/Equity (mrq) 23.25
Current Ratio (mrq) 0.27
Book Value Per Share (mrq) 0.00
Cash Flow Statement
Operating Cash Flow (ttm) -2.73M
Levered Free Cash Flow (ttm) -1.36M

So how do they move forward w/ 37k in cash?

Respectful question.
p
The two best lithium plays on the planet are European Metals and Vulcan. Between them they have more than 90% of the lithium reserves on the European continent. The EU and the Battery alliance will mandate 80% of all lithium consumed by European manufacturers comes from Europe. There's no way that demand is met without European Metals and Vulcan. Impossible. Both of these co's could announce offtake agreements any day now and they'll do a "Piedmont" rip your face off rally. Next best names are the DLE (direct lithium extraction) plays like E3 and Standard Lithium. I'll have nothing to do with S. America as sooner or later they'll get fed up with all these horrible projects sucking up the last drop of water. You want to be in Europe and then N. America. DLE names promise a much much greener footprint and that's going to matter a lot particularly in Europe where all vehicles will have a "passport" detailing their carbon footprint.
tufttugger profile picture
@passionatepiper65 Just as a heads up, these S. America plays are in arid basins with minimal populations if any, that don't outlet any water that could arrive to downstream water courses that supply agriculture or population centers. All the water comes out of these isolated groundwater basins that have a lot of metals dissolved, which is what they mine. So no real issue with 'sucking up the last drop of water'. It's a different case for different types of mining though (like lithium clay sources that need acid, or something to suspend clays in).
m
@passionatepiper65 @tufttugger Disagree. Lithium Americas likely to be a 5-10 bagger from here. I'm a triple now. Their Argentina brine mine, partnered with Ganfeng, will be operational early next year, then comes the biggy, their 100% owned Nevada Thacker Pass ore mine that will be the second largest lithium mine in the world when operational in late 2022-early 2023. They received government permissions early this year. Read the SA "Comprehensive" article from early last year, but push the timing back 1-1 1/2 years because of COVID.
tufttugger profile picture
@mlhutche I assume you're responding to @passionatepiper65 . I'm in agreement with you.
d
This is a great article and LAC is the blue chip in the sector given their assets and management. In addition, the Thacker Pass area has a LOT of further potential with the southern exploration area across the street that could be bigger than this 60k project. Not to mention all the other rights they hold in the hills.

That said, you have a company like Pilbara with a similar cap, who is already producing and can flip the switch on their next door ready-to-go Altura asset at will. They could be 20% of the entire market with less risk and wait than LAC.
Luconi_VoxPak profile picture
@Austin Craig can you comment on MP Materials as they produce important materials for batteries? Thanks
Austin Craig profile picture
@Luconi_VoxPak They are on my watch list but I've yet to do a deep dive on them. Let me glance at them some tonight.
Luconi_VoxPak profile picture
@Austin Craig Looking forward. Thanks
X
Always be aware of such stocks and new energy products. This will only take off depending on government policy.
Austin Craig profile picture
@Xandi Given the demand coming via consumers gov policy is only icing on the cake.
sirhowitzer profile picture
@Xandi The free market trend has spoken, Lithium is not a new primary product simply count how many household consumer and durable goods already integrated its practical use. Trade wars are an extension of diplomacy that can use only the carrot and not the stick (China). The mere sound of foreign government intervention will bring images of failed states (Libya) and the like into the conscience of leadership abroad (Bolivia).
twitter.com/...
Austin Craig profile picture
@sirhowitzer I would look at how much capital is flowing into lithium via the car makers.
m
Austin, I have a question kinda like Azzie below. With $500M why do they need a partner?
Austin Craig profile picture
@mlhutche I've have to crunch the numbers but 500 million may not be enough to finish the South American mine AND thacker pass -- unless they pull the scope back of TP some.

Of course option two would be to wrap up the SA mine and use the profits to push out TP. Given how long its going to take for permitting via the state and then actually build it out this may be an option.

Otherwise they pair up to get it out the door faster and move on to other projects.
m
@Austin Craig The CEO of LAC actually said they can go it alone with TP. They have enough funds. Their $400m offering was 2x oversubscribed.
m
Austin, great article overall, but far too much emphasis on "speed". Yes it's an eye-catcher and important, but the new lower prices/lifetime cost and environmental push FAR more important.
I own a Model S with a Y coming. LAC my largest holding now that I reduced my Tesla position, purchased Spring last year and have smaller positions in CYDVF and PEMIF from mid-2020. I bought LAC after reading the incredibly detailed SA article "Lithium Americas: A Comprehensive Analysis". Update it for COVID timing impact and it says it all for me.
Anyone not in some of your "Five" is missing a sure thing. Keep up the good work.
Austin Craig profile picture
@mlhutche Well, for the average consumer I think acceleration is going to be the selling point.

But yes, price and lifetime cost due to lower maintainer costs are a big factor too.
A
Austin, LAC raised over $400 million by selling their stock at a price of $22 plus. The opportunity to have a partner(s) fund all or part of construction costs for TP exists so would it make sense to buy back some of their stock at $15-16?
Austin Craig profile picture
@Azzie I suppose you could.
A. Paul Gill profile picture
@Austin Craig Lithium is roaring. However, watch graphite too - price is sneaking up and the best deal is $LMRMF. Check this out www.cbc.ca/...
k
@A. Paul Gill no, it is Talga Resources!
kos47 profile picture
Since there are tooooo many Lithium companies out there and I have too little time to research them all, I just stick with LIT for now.
A
@kos47 Same here - as I do with charging, recycling, materials, and even the AI software. Just buy the bucket of each. Way too easy for one earnings miss or SEC statement to end up in a bad way with just a few individuals. Especially when everything is overvalued to the hilt to begin with.
m
@Angelo Iacovella Way too diffused guys and a large part of LIT is "relatively" low-multiple like the battery manufacturers. Follow Austin's advice. Also read the "Comprehensive" SA article on LAC.
I've tried to find equally compelling companies in the other primary materials like nickel/cobalt/rare earths, but haven't found anything that looks as likely to be a 5-10 bagger.
Austin Craig profile picture
@kos47 LIT is not bad but I prefer not to have exposure to TSLA. Nice chemical exposure though.

12.43 ALB ALBEMARLE CORP 2046853 150.74 2,306,050 347,613,977.00
5.92 002460 C2 GANFENG LITHIUM CO LTD-A BD5CB19 14.47 11,431,857 165,461,202.50
5.64 006400 KS SAMSUNG SDI CO LTD 6771645 589.30 267,674 157,740,476.21
5.39 6752 JP PANASONIC CORP 6572707 12.74 11,835,255 150,829,945.05
5.27 TSLA TESLA INC B616C79 661.75 222,958 147,542,456.50
5.13 300750 C2 CONTEMPORARY A-A BHQPSY7 50.17 2,861,355 143,553,890.41
5.05 300014 C2 EVE ENERGY CO LTD-A BD5C7G6 11.87 11,890,692 141,188,917.47
5.04 SQM QUIMICA Y-SP ADR 2771122 54.28 2,598,867 141,066,500.76
4.79 1211 HK BYD CO LTD-H 6536651 22.83 5,864,648 133,865,940.52
4.55 051910 KS LG CHEM LTD
Austin Craig profile picture
Update #2: Looks like I missed some spelling issues, commas, spacings, etc.
Formatting issues also submitted to be fixed to make it more visually easy on the eyes.

An authors work is never finished.
PancakeWednesday profile picture
@Austin Craig Get an editor? ;)
Austin Craig profile picture
@PancakeWednesday I've one. Did not run it by them as it was a hot fix.
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