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analysis

On today’s Breakouts report, there are just two stocks on the positive breakouts list (stocks with positive price momentum), and 79 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that entered correction territory.

Month-to-date, the share price is down 28 per cent, making it the worst performing stock in the S&P/TSX Materials Index. This correction may soon present a buying opportunity to long-term investors. The stock has 14 buy recommendation and two neutral recommendations. The average 12-month target price suggests the share price has nearly 42-per-cent upside potential. The company discussed today is Lithium Americas Corp. (LAC-T).

A brief outline on Lithium Americas is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Vancouver-based Lithium Americas is advancing several lithium projects: its 100 per cent owned Thacker Pass project located in Nevada, U.S.A., Cauchari-Olaroz located in Argentina and the Pastos Grandes project in Argentina.

Thacker Pass, its 100-per-cent owned project in Nevada, is a large-scale, low-cost project. Details from a feasibility study are expected to be released in the second half of this year with management targeting production capacity of 40,000 tons per annum with Phase 1 rising to 80,000 tons per annum with Phase 2. A 2018 pre-feasibility study indicated a production capacity of 60,000 tons per annum (Phase 1 production capacity of 30,000 tons per annum increasing to 60,000 with Phase 2), a mine life of 46 years with cash costs of under U.S. $2,600 per tons (open-pit mine).

The Cauchari-Olaroz mine has access to power and water and is located on an international highway. The company is in a joint venture on this project with Ganfeng Lithium Co. Ltd. (China’s largest lithium producer with a 51-per cent-interest). The project experienced delays with construction now anticipated to be completed shortly (approximately 85-per-cent complete in mid-March) with production expected to begin in the second half of 2022. According to its Definitive Feasibility Study (DFS) released in Sept. 2019, Cauchari-Olaroz has expected average battery-grade lithium production of 40,000 tons per annum and a mine life of 40 years. Operating costs are expected to be U.S. $3,579 per ton. Later this year, management will begin construction of its Stage 2 expansion for Cauchari-Olaroz.

Pastos Grandes, its 100-per-cent owned project in Argentina, was acquired with the purchase of Millennial Lithium Corp. in January. This project is roughly 100 kilometers away from its Cauchari-Olaroz project. According to a 2019 feasibility study, this project has a production capacity of 24,000 tons per annum of lithium carbonate and over a 40-year mine life.

The company also has a 17-per-cent interest in Arena Minerals, an exploration-stage company with its lithium brine asset, Sal de la Puna (SDLP), located next to Pastos Grandes.

The stock is dual-listed, trading on the Toronto Stock Exchange as well as the New York Stock Exchange under the same ticker, LAC.

Investment thesis highlights

* Growing consumer demand for electric vehicles (clean energy).

* Future supply/demand imbalances. In the coming years, future lithium demand is anticipated to outstrip supply at an accelerating pace. Lithium-ion and lithium polymer rechargeable batteries are used in cell phones, laptop devices and electric vehicles – and demand for these products will grow. In the years ahead, electric vehicles will gain momentum as infrastructure and convenience increases, affordability improves, and environmental concerns rise.

On April 20, Elon Musk, chief executive officer of Tesla Inc., provided a positive growth outlook for the company, “We only crossed 1 million units in the past 12 months recently and we aspire to head to 20 million units a year, so we’re basically 5 per cent along the way towards our goal. And we are growing very, very rapidly year-over-year. And we remain confident of exceeding 50 per cent annual growth for the foreseeable future, for basically several of the next years.”

On March 10, RJ Scaringe, chief executive officer of electric vehicle manufacturer Rivian Automotive Inc. (RIVN-Q), stated on the earnings call, “Electrification is at a tipping point as trillions of miles traveled each year across the planet transition to EVs [electric vehicles].”

* Support from elevated lithium prices.

* Industry leader. Its 100-per cent owned Thacker Pass project located in Nevada is the largest known lithium project in the U.S.

* Company milestones that may drive the share price higher:

1) Further details surrounding the possible separation of the company’s U.S. and Argentina operations by creating a standalone public company focused on its Thacker Pass project.

In February, management began exploring this arrangement that could unlock shareholder value with the president and chief executive officer Jonathan Evan stating, “Thacker Pass is one of the largest-scale and most advanced development-stage lithium projects in the U.S. and received a Record of Decision in January 2021. The project is aligned with the national agenda to enhance domestic supply of critical minerals and has the potential to be a leading near-term source of lithium for the US battery supply chain”;

2) Production at Cauchari-Olaroz. Construction of the project is nearing completion (approximately 85-per-cent complete as of mid-March) with production slated to begin in the second half of 2022. The stock may soon be re-rated (the stock’s valuation may rise) with production beginning shortly;

3) Results from its feasibility study on the Thacker Pass project are expected to be announced in the second half of 2022;

4) Financing is secured to help finance Thacker Pass, like potential strategic partnerships). Earlier this month, the company announced that it submitted an application to the U.S. Department of Energy for its Advanced Technology Vehicles Manufacturing Loan Program.

As of Dec. 31, the company had US$511-million of cash on its balance sheet and U.S$75-million in capital available from undrawn credit and loan facilities.;

5) Announcement of management’s development plans for the Pastos Grandes project.

Key potential risks to consider: 1) rising costs; 2) permitting delays; 3) funding/capital requirements; 4) lithium price volatility; 5) risk-off trading environment; and 6) high share price volatility.

Dividend policy

Management is focused on advancing its lithium projects, and as a result, the company currently does not pay its shareholders a dividend.

Analysts’ recommendations

There are 16 analysts covering this mid-cap stock with a market capitalization of $4.6-billion. The stock has 14 buy-equivalent recommendations and two neutral recommendations.

The firms that provide research coverage on the company are: B Riley Securities, BMO Nesbitt Burns, Canaccord Genuity, Clarksons Platou Securities AS, Cormark Securities, Cowen, Deutsche Bank, Eight Capital, HSBC, iA Capital Markets, Jefferies, JP Morgan, Morningstar, National Bank Financial, Stifel Canada, and TD Securities.

Revised recommendations

Month-to-date, the following analysts revised their expectations.

  • Deutsche Bank’s Corinne Blanchard increased her target price to U.S. $40 from U.S. $34.
  • Morningstar’s Seth Goldstein upgraded the stock to a “buy” from a “hold” with a US$45 target.

Financial forecasts

According to Bloomberg, the Street is forecasting revenue of US$70-million in 2022, ramping up to US$322-million in 2023 and US$497-million in 2024. The consensus EBITDA estimates are US$80-million in 2023 and US$266-million in 2024.

Valuation

The company is commonly valued on a price-to-net asset value basis.

According to Bloomberg, the average 12-month target price is $48.81, implying there is nearly 42-per-cent upside potential in the share price.

Insider transaction activity

Most recently, director Alex Shulga sold 7,875 shares at a price per share of $43.50 on April 7, eliminating his position in this particular account. Proceeds from the sale exceeded $342,000, excluding commission charges.

On April 4, Geologic Resource Partners LLC sold 560,559 shares in the public market at a price per share of $47.24 with proceeds from the sale totaling over $26-million. Lithium Americas’ chairman of the board of directors George Ireland founded Geologic Resource Partners and is the chief executive officer and chief investment officer.

Chart watch

Year-to-date, shares of Lithium Americas are down 6 per cent. The share prices of a couple of its peers have massively outperformed. Shares of Sigma Lithium Corp. (SGML-X) are up 56 per cent in 2022 and shares of Frontier Lithium Inc. (FL-X) are up 60 per cent year-to-date.

Lithium Americas’ share price can be quite volatile experiencing frequent sharp moves higher and lower. In recent weeks, the share price has collapsed. Month-to-date, the share price is down 28 per cent, making it the worst performing stock in the S&P/TSX Materials Index out of 52 stocks in this sector.

Despite the price correction, the stock is not yet in oversold territory. The relative strength index (RSI) is at 38. Generally, a reading at or below 30 suggests an oversold condition.

The share price is currently hovering around $33, near its 200-day moving average at $32.95 – a level providing strong technical support. Failing that, there is technical support around $30. Looking at the upside, there is overhead resistance around $40. After that, there is a major ceiling of resistance around $50.

ESG Risk Rating

Rating provider Sustainalytics has given Lithium Americas an ESG risk score of 60.6 or ‘severe risk’ rating (defined as a score over 40) as of Feb. 18, 2022.

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MRC-TMorguard Corp $127.50
GRA-TNanoXplore Inc. $3.28
NA-TNational Bank of Canada $92.19
NEO-TNeo Performance Materials Inc. $12.99
NCU-TNevada Copper Corp $0.57
NGD-TNew Gold Inc $1.96
NEXT-TNextSource Materials Inc. $3.07
NOA-TNorth American Construction Group Ltd. $17.58
NOU-XNouveau Monde Graphite Inc. $7.86
NVO-TNovo Resources Corp. $0.86
OCO-XOroco Resource Corp. $1.63
PXT-TParex Resources Inc $24.49
PSH-XPetroshale Inc. $0.70
PRYM-XPrime Mining Corp. $3.25
RPI-U-TRichards Packaging Income Fund $45.94
RUP-XRupert Resources Ltd. $4.96
SCL-TShawCor Ltd $4.69
SHOP-TShopify Inc. $584.24
SMT-TSierra Metals Inc $1.13
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Source: Bloomberg and The Globe and Mail

This report is not an investment recommendation.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

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