Positives For Lithium Americas- Government Money, An Australian Investment, And Legal Resolution

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Intro

In this article, we are going to put the puzzle pieces together concerning various loans available from the Canadian and United States governments. We will then glance at Lithium Americas (LAC) inspirations in order to get a feel for their future planning. We are going to cover short term inflation viewpoints along with Lithium Americas buying a stake in an Australian lithium miner.

Lithium and the National Defense Viewpoint

Much has been said in passing about how China dominates lithium processing.

According to the White House, China:

Produces 73 percent of global lithium-ion batteries, which are the primary source of energy for electric cars (Henze 2022).”

“Key parts of battery supply chains are largely located in China, which refines 60 percent of the world’s lithium and 80 percent of the world’s cobalt—two core inputs to high-capacity batteries, without close substitutes. Access to these inputs critical for defense is more assured if the goods are produced domestically (White House 2021a).”

This is obviously very undesirable with lithium being the upcoming “white oil” of our age. The future is lithium and he who controls the lithium supply chain will exude power. Moving forward over the next two decades, we are going to see a total shift in what powers automobiles: it may also include hand tools, four-wheelers, electric powered toys and even electric skateboards. The reasons for lithium’s rise are many (the answers will vary from person to person). Some combination of these yield the truth: Physics of energy storage, geopolitics, political power, and the ability of politicians to profit from the sea change. Mechanical efficiency, acceleration of electric cars, and lastly some people think they will pollute less all come into play. Whatever the reason, this sea change is here and it is accelerating. Concerning national defense, the last thing the United States wants is a repeat of 2010 incident when China banned all rare earth elements to Japan. What if the same were applied to the United States? Given our dependency on China for rare earth elements and lithium, that is not a position we want to be in as a nation. Nor does Canada want to be at the mercy of China.

Sleeping At The Lithium Wheel

The wars of the last 20 years were (unfortunately) a distraction. I will avoid going into all the reasons why, but the short story is America ignored true problems (be it domestic or foreign) much to its detriment. China, however, was not so near sighted and instead took a long viewpoint on energy (much like they do on Taiwan). The shift from oil to lithium is obvious to anyone looking to the future. China has not ignored this. They have been quite active buying various lithium mines or entering into partnerships. For example, they own 51% of the Lithium Americas South American project (excluding what the local government of that providence owns). On a side note, this is not to say oil is going away. Frankly, the world runs on oil (be it production or transportation) but a shift is in the works. Getting back on topic though, the Chinese influence on the South American project is somewhat of a problem for LAC.

Obviously, this might be part of the reason LAC has talked about spinning out the North American assets. This would make Lithium Nevada (a subsidiary of Lithium Americas) a pure play and free from Chinese associations. Hence, they could go after some of that tasty Canadian or United States government funding unencumbered with Chinese foreign associations.

Canadian and United States Funding of Critical Elements

$17.7 Billion in Federal Funding is available for companies to apply for via Advanced Technology Vehicles Manufacturing Loan Program (ATVM). Additionally, $2 billion Canadian is available via the Canadian government.

Canada’s federal budget will include an investment of at least C$2 billion ($1.6 billion) for a strategy to accelerate the production and processing of critical minerals needed for the electric vehicle (EV) battery supply chain”

and

“Canada last month announced financial support for building two facilities that will make battery materials for electric vehicles, and one battery giga factory”

Lastly we have the recently announced $3.16 billion in grants per the Department of Energy. A key word here is grant money, hence you do not have to pay it back. Also included is $60 million for battery recycling. The first name on domestic soil that pops into my mind for battery recycling would be American Battery Technology Co (OTCQB:ABML). If you add up the figures it approaches $23 billion via various loans and grants that are available.

Who Stands to Benefit From Government Loans?

The obvious choice is Lithium Americas. They have publicly stated they are going after part of the $17.7 billion in United States funding. Given that the American government funding is open to foreign companies, less obvious choices alternative choices would be:

Nano One (OTCPK:NNOMF) – The company has various irons in the fire, but lately they have been hiring personnel with expertise in running projects and cathode facilities. I could easily see Nano One snagging part of that Canadian contract given past government support for the company and the various partnerships in place with the auto industry.

Nano One partners – Yellow highlights are the authors (Nano One)

Electra Battery Metals (ELBM) – The company has a cobalt processing facility in Canada due to come online this December as well as a potential cobalt mine in the state of Idaho.

Cobalt Facility Construction (Electra Battery Materials)

Cypress Development (OTCQB:CYDVF) – Having a rather large lithium project with water rights in Clayton Valley, the company is bordered by Albemarle (ALB). Albemarle has expressed interest in clay assets in the valley. Cypress has said it is exploring various government funding opportunities, but it will most likely have to wait on the feasibility study to be concluded before we see any news on that front.

Albemarle Clay Ambitions (Albemarle)

Use Control and + to expand picture or click the link above)

Inflationary Concerns

Now we come to the part you might not want to hear – inflation. The creating of vast sums of money under Trump and Biden have resulted in a tremendous amount of capital chasing goods. Goods which might be in short or reduced supply due to supply chain woes of the last two years coupled with recent events in the Ukraine. These goods are being chased by an ever-expanding supply of capital.

Now the U.S. government likes to play games when it comes to how you calculate inflation. Simply put, the name of the game is to keep the official numbers low. A good article can be read on the subject here. While the government might say inflation is single digits, I would place the figure much higher, i.e., housing, fuel, and food costs. To throw even further gas on the inflation inferno, the Biden administration has not done any favors to the oil industry by blocking the Keystone pipeline.

(Granted as one of my friends pointed out, part of the reason for high prices at the pump was a lack of capital spending by the oil companies when oil crashed a few years back.)

Third, relations with Saudi Arabia have soured and the kingdom is unwilling to cut prices to appease the Biden administration. Lastly, Biden banned Russian oil from U.S. shores (to which the Russians diverted it to China and India). All of this together has resulted in pain at the pump for consumers and since most goods require oil in some manner (be it production and/or transportation), this results in rising costs being passed on to the consumer.

Thus, what is the Fed to do? Some have advocated that the Fed might have to raise rates to Volcker levels (20% was his highest raise in the early 1980’s).

Obviously, this would destroy the housing market and cause rampant unemployment. (Not exactly the optimal solution.) I do not have an answer to this problem. The bed is made, maybe we just have to lie in it and let the business cycle run its course. The point is choppy waters might be in store for investors, given the above inflation issues.

While I feel certain of the direction lithium investments will go, given the massive capital out lays by VW (OTCPK:VWAGY) BMW (OTCPK:BMWYY), Ford (F) and Tesla (TSLA) (along with broad government support to bring chemical processing of lithium to North American shores). The same cannot be said about the big picture view of the economy. Hence, keep some power dry.

Lithium Americas and Green Technology Metals

No one will ever call Lithium Americas a company that lacks ambition. The massive South American project should be online come Q1 (give or take). Thacker Pass is doing well in court and could be receiving government funding. Not to mention, LAC has land rights from Thacker Pass to the Oregon border.

Thacker Pass (Lithium Americas)

Then, you have the Millennial Lithium Acquisition. After this, LAC acquired a sizable chunk of Arena Minerals (OTCPK:AMRZF).

Is that good enough for LAC? No, for a company with unbridled ambition and a monstrous war chest of capital they just purchased 5.3% of a Australian lithium miner. Green Technology Metals (GT1:ASX) is going to work with LAC in Reno to try to advance its Canadian project. Per the above press release:

VANCOUVER, British Columbia, April 28, 2022 (GLOBE NEWSWIRE) — Lithium Americas Corp. (TSX: LAC) (NYSE: LAC) (“Lithium Americas” or the “Company”) is pleased to announce that it has entered into an agreement to acquire shares of Green Technology Metals Ltd. (ASX: GT1) (“GT1”) in a share placement for total consideration of US$10 million. GT1 is a North American focused lithium exploration and development company with hard rock spodumene assets in north-west Ontario, Canada (“Ontario Lithium Projects”).

“GT1’s team brings a strong track record of lithium exploration and resource extraction, which fits well with Lithium Americas’ expertise in chemical processing,” commented Jon Evans, Lithium Americas’ President and CEO. “With this initial investment, we look forward to working closely with GT1 to help accelerate the development of a North American lithium supply chain.”

Key guiding principles of the Framework involve both parties working together in seeking to:

  • Rapidly advance GT1’s Ontario Lithium Projects and fast-track the Seymour lithium project (80% GT1) into production.
  • Develop midstream and downstream processing routes for battery-grade lithium chemicals in Ontario and across North America.
  • Advance development plans and project financing for an integrated lithium chemicals business.
  • Source downstream offtake partners and deliver an integrated supply chain solution to customers.
  • Leverage Lithium Americas’ Lithium Technical Development Center in Reno to further test and develop intermediate and final lithium products.”

Conclusion

Given the massive Federal funding available (combined with the aspirations of LAC), I view them as a great long term buy. However, short term, the entire market is a hot mess. To call this market bi-polar would be an understatement. One week we are hot and life is peachy. The next week it is doom and gloom. Inflation concerns are real and anyone buying LAC should plan on quite the macro rollercoaster. However, taking a company specific view, LAC offers excellent long term odds of success. With the South American project to come online around Q1 give or take; this will provide revenue and profits for the company as it starts to ramp up. Granted this will take time.

Thacker Pass will most likely win the court case due to the strategic necessity of domestic lithium production and the fact the only real challenger is one rancher who lives miles away and a few out of state lawyers. Frankly, the Thacker Pass is a project in the middle of nowhere.

Factor in the South American project expanding via the Millennial Lithium purchase, LAC owning 20% of Arena and now 5.3% of a Canadian project, and you can only speculate how aggressive LAC will get once the South American project produces profits.

Due to the bi-polar market though, this should be viewed as a long-term play. After all, Thacker Pass will take years to fully expand. I could see buying this one for a 5-10 year time frame and ignoring the short-term pain trains of market swings. I realize most “modern” younger investors lack the patience for such long-term buy and hold endeavors because they want the returns “now if not sooner”. Yet buying a company that has cash, assets, solid leadership, and aggression can be very profitable if one is willing to buy and hold.

Extra: A very good summary of Arena Minerals can be found here.

Additionally, an enjoyable article on Albemarle is available.