Lithium Americas Corp. LAC-T has landed a US$650-million financing with General Motors Co. that moves the Canadian lithium company closer to breaking ground on a massive lithium mine that should help alleviate a North American shortfall for the key battery metal.
Detroit-based GM GM-N is set to become the largest shareholder in Lithium Americas, with a stake of just under 10 per cent, and it will also be entitled to exclusive supplies of the lithium carbonate produced during the first 10 years of the mine’s operation.
The equity financing, the biggest by a car company into a lithium miner, is contingent on Vancouver-based Lithium Americas winning legal approval to build its mine in Nevada.
Thacker Pass is projected to be the biggest lithium mine in the United States once it is built in 2026, and it should significantly help fill the need for North America-sourced lithium. Currently there is only one small lithium mine in the U.S. and the only lithium mine in Canada is owned by a Chinese company.
The U.S. and Canada are trying to move away from dependence on China-controlled lithium. The Asian superpower owns, or has stakes in, many large lithium mines globally, including a large share in another lithium project owned by Lithium Americas. China also controls just under 60 per cent share of the highly profitable refining market for lithium.
While supply agreements between mining companies and automakers such as Tesla are commonplace, automakers have lately started to take equity stakes in order to move projects along faster. GM says the lithium it sources from Lithium Americas will support the manufacture of one million electric cars a year.
“It’s a landmark transaction and it certainly won’t be the last major supply chain announcement for GM,” chief executive officer Mary Barra said in a conference call about the car company’s investment in Lithium Americas. “We continue to pursue strategic supplier agreements and partnerships to further secure our long-term needs and drive investment in the United States and across North America.”
Lithium Americas obtained federal approval to proceed on construction of Thacker Pass in 2021, but it is waiting for a ruling on an appeal of that decision before proceeding with construction.
In a conference call with analysts, Jonathan Evans, the CEO of Lithium Americas, said the company is “very confident” it will obtain all the approvals it needs.
“The likelihood of permits being pulled here is extremely low,” he said.
Lithium Americas is due to receive an initial US$320-million infusion from GM after the ruling from a U.S. court. The balance will be freed up after Lithium Americas separates its U.S. and Argentine businesses. The Argentine division is a key part of the company’s growth plan, but politically it has created tension in North America because Chinese company Ganfeng Lithium is a 46.7-per-cent joint venture partner in its Cauchari-Olaroz lithium project.
Even with the sizable investment from GM, Lithium Americas needs to raise significantly more funds in order to get Thacker Pass into production. The capital cost estimate on the first phase of Thacker Pass, which was also released on Tuesday, rose almost fourfold to US$2.3-billion from US$600-million in 2018.
Mr. Evans said in an interview that the updated figure is based on an improved design, an operation that is one-third bigger, and more stringent industry demands around battery grade standards.
Despite the big bump in cost, Mr. Evans did not express much worry over the remaining funding, saying that most of the money will likely come from a U.S. Department of Energy loan.
“We’re very confident in a DOE loan, and the scale of a DOE loan is typically between 55 to 75 per cent of the capital costs,” he said.
Thacker Pass’s lithium is contained not in hard rock or brine, the industry standards, but in clay. Technology to extract lithium from clay is largely untested in large-scale mining. In addition, the company doesn’t have a lot of experience building mines.
Lithium Americas “has little to no experience as an operator, especially in light of the technical complexities involved in producing battery-grade lithium carbonate at scale,” Scotia Capital Inc. analyst Ben Isaacson wrote in a note to clients on Tuesday, addressing some of the risks for investors.
Lithium Americas and GM reached their deal a few months after the U.S. automaker made a US$69-million equity investment in Queensland Pacific Metals, an Australian cobalt and nickel development company. In June of last year, Stellantis NV, another major global automaker, took an equity stake worth US$52-million in Australian lithium producer Vulcan Energy Resources.
Shares in Lithium Americas rose by 13.5 per cent to close at $33.46 a share on the Toronto Stock Exchange on Tuesday.
Niall McGee