Despite all the negative sentiment and volatility to start the year, note that lithium prices have more than held their own, increasing 31% YTD to reach 367,500 yuan / tonne (CNY/T). There is continuous demand from the EV market with key manufacturers such as Tesla and Ford (F-150 Lightning) stating that batteries (and not semiconductors) are currently the key bottleneck in the manufacturing process. Though no major supplies are expected to come on stream in the near term, potential supply was further impacted on January 20 when the Serbian government revoked Rio Tinto’s exploration licenses for a proposed $2.4B lithium mine which was expected to produce 58,000 tpa of refined lithium carbonate (enough lithium for approximately 1.0M EV batteries).
Though we exited the vast majority of our holdings in Lithium Americas (LAC) on November 29, 2021 shortly after a successful bidding war for Millennial Lithium, the on-going market fundamentals remain compelling, specifically after a nearly 40% retracement from the highs north of C$50/share.
Having won the bidding war for Millennial's flagship Pastos Grandes lithium brine project (Salta province, Argentina), LAC provides for an attractive (and now consolidated) growth opportunity near Cauchari-Olaroz with the potential to extract significant synergies. The Cauchari-Olaroz project is currently under construction and is due to start lithium carbonate production later in 2022, ramping up to a rate of 40,000 tpa with a Stage 2 development plan for an additional 20,000 tpa. The project has a projected 40 year LOM with operating costs estimated at $3,600/t. The company currently has nearly $500M in treasury while construction is fully funded with available debt. Note that 80% of planned stage 1 production has already been contracted for at future market prices.