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Lithium Americas "on track" to become a leading market player, says Mackie Research

Mackie Research has initiated coverage on Argentina-focused Lithium Americas (TSE:LAC) with a "speculative buy" rating and a $3.10 target price.

In a research note, Mackie Research's analyst, Matt Gowing, said: "LAC is on track to becoming a leading player in the lithium market."

Lithium Americas has identified the third largest known lithium brine resource in the world, and the results of an NI 43-101 compliant preliminary economic assessment show that the company's flagship Cauchari-Olaroz brine deposit in Argentina has the potential to become one of the lowest cost lithium operations globally.

Cauchari-Olaroz has a total lithium and potash resource of 8.0 million tonnes and 25.4 million tonnes, respectively. In addition to lithium, Mackie Research also sees upside from by-products such as potash and boron at the flagship property.

Mitsubishi Corp. and Magna International (TSE:MG)(NYSE:MGA) - major players in the automotive sector - are strategic shareholders in the company, in addition to both having off-take arrangements with Lithium Americas.

"These relationships provide an important competitive advantage that should allow the project to succeed," Mackie's Gowing said.

Mackie Research expects the company to reach a 16,000 tonne per year production rate in 2015, and then to reach a peak production rate of 40,000 tonnes per year by 2019, putting the company "on par with the largest producers in the industry".

An April 2011 preliminary economic assessment (PEA) completed by ARA Worley Parsons defined an operation with an eventual operating capacity of 40,000 tonnes of lithium carbonate per year, having an operating cost of $1,434 per tonne.

If achieved, this would be one of the most competitive costs of any lithium operation in the world, the Mackie Research note said.

Lithium's characteristics make it suitable for a number of uses, but for many years, the metal was used mainly in the production of ceramics, glass and as a strong aluminum alloy.

However, demand for lithium has since boomed due to the advent of the rechargeable lithium-ion battery, used in anything from watches and cell phones, to BlackBerrys, iPods and for electric vehicles, power tools and military equipment.

As for near-term catalysts, a definitive feasibility study (NYSE:DFS) is expected to be completed in the first quarter of next year.

Mackie's Gowing believes the DFS will show "improved economics" over those in the preliminary economic assessment (PEA) as potash production should be included in the report.

In November, Lithium Americas said that pilot production for its Cauchari-Olaroz project is underway, making the company one of the few to actually be producing battery-grade lithium carbonate.

The company's stock is currently trading at $1.26.

"At current share price levels, the market is not adequately valuing these strengths," Mackie's Gowing said.

The project is located approximately 250 kilometres northwest of San Salvador and 100 kilometres east of the international border with Chile.

The Cauchari-Olaroz properties include 84 mineral exploration permits that cover approximately 80,000 hectares in the Puna Plateau. Lithium Americas holds additional exploration prospects in the Puna Plateau, and in total, its land holding portfolio approximates 160,000 hectares.

The bulk of the lithium resource occurs within the sand unit, which is expected to be favourable for recovery of the brine since sand units can be pumped at higher rates, generally, the Mackie report noted.