I’m not going to bore you with lengthy ramblings. The premise concerning lithium is very simple. Electric cars are coming in droves. Now is the time to invest in lithium and one company in particular has caught my eye for years – Lithium Americas (LAC). Why is that? Because per government filed documents, Lithium Americas is proposing a lithium battery factory just north of Tesla (TSLA) and a lithium mine.
History Lesson
I’ve said it before and I’ll say it again: Everyone has lithium, but few have the capital to actually develop a mine (much less the leadership.) LAC has both. Lithium Americas succeeded in building out a lithium mine in South America when the 800-pound lithium gorilla Sociedad Química y Minera (SQM) came on board. Later on, SQM sold its interest to the Chinese (who eventually acquired 51% ownership of the mine.) But ask – Why did LAC give up its controlling interest in the South American mine?
My theory is perhaps Lithium Americas has its eyes set on another prize… a much larger prize. Exiting from a controlling interest in the South American mine brought it additional capital, loans, and freed it from being in a JV with the Chinese. Given President Trump’s bid to reduce foreign influence on rare earth elements, this was a strategic move that will allow for easier financing of the Nevada mine.
Eyes on the Prize and Tesla Battery Conference
China is going to need tons of lithium; the U.S. is going to need the white metal as well. Lithium Americas has a potential mine named “Thacker Pass” that is, as I write, going through the BLM (Bureau of Land Management) approval process in northern Nevada. Given the proximity to Tesla, it is not so crazy an idea that Tesla might partner up with the company in a bid to secure lithium. Lithium Americas requires a deep pocket partner to partially fund its potential mine: Tesla requires a guaranteed supply of lithium. Thus, this partnership makes sense. It is interesting to note Tesla has a planned Battery Day conference on September 22nd. Much speculation revolves around this event which Electrek comments on per:
As we previously reported, the real announcement at Battery Day is Tesla’s Roadrunner project which aims to solve battery supply constraints and enable Tesla to launch its many upcoming vehicle programs that are going to be massive battery consumers – namely Tesla Semi and Tesla Cybertruck.
Tesla is going to lay out how it plans to not be completely reliant on third-party manufacturers anymore. The automaker is still going to need them for the foreseeable future, but it is going to show a path to supporting itself with its own battery production.
Furthermore, we also expect some battery performance improvements being announced at the event, but I think that will actually be second to the scale and cost of batteries that Tesla plans to present at the event.
(Proposed Thacker Pass layout)
Battery Factory
Reading the proposal for the Nevada mine last night at the Bureau of Land Management website, I could not help but notice that Lithium Americas has laid out its plans to build a lithium battery factory. You can read the entire proposal here, but the bulk is located in document “DEIS Chapters 1-6.” On page 1-3 we are greeted with
“Construction and operation of a battery production facility” and “Battery production complex” on pages 2-8.
Now why are they creating this battery complex? Per LAC from Appendix B:
“Due to rapidly rising demand by the uptake in electric vehicles and energy storage, securing lithium supply has become a top priority for battery producers and vehicle manufacturers. Lithium is contained on a list of 35 critical minerals defined by the United State Department of the Interior (83 Federal Register [FR] 23295) pursuant to Executive Order 13817 of December 20, 2017, A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals. The executive order includes a policy clause for “streamlining leasing and permitting processes to expedite exploration, production, processing, reprocessing, recycling, and domestic refining of critical minerals.”
Looking at Figure 13, we can see the below picture of the proposed battery facility. A proposed battery plant appears to be approx. 160,000 square feet by my calculations. 
(Note the battery production complex circled in blue)
(Close-up view of the battery production complex)
So in essence, we have Lithium Americas with a successful mine being built in South America and a potential mine in Nevada (about 3 hours north of Tesla.)
(Tesla to Thacker Pass)
Maybe Tesla pairs up with Lithium Americas or maybe someone (U.S.-based) pairs up with them such as Volkswagen (OTCPK:VWAGY). Volkswagen is currently exploring lithium technology via Nano One (OTCPK:NNOMF), and they have some lithium deals in place but securing domestic mines would benefit them. The takeaway here is that LAC is entering into the battery market for cars and if Tesla or Volkswagen partner with them, the supply chain is not only shortened from Argentina but it is also secured, not to mention costs reduced.
Increased Demand For Lithium
Putting the battery factory aside, we will see an increase in demand for lithium. Here are a few projects that will push demand up. SK Innovation (OTC:SKOVF) 1.5 billion plant in Georgia. Volkswagen 56+ billion. Ford (NYSE:F) will invest 11.5 billion by 2023. The point is a lot of money is being invested in lithium.
Risk
Lithium Americas stock has had quite a rise in the recent month. The obvious risk is the stock pulls back. Another concern is that the Bureau of Land Management denies the project. I view denial as very unlikely due to national strategic needs of lithium (as well as local economic needs.) The third risk would be that Tesla’s “Battery Day” comes and goes with no news, the hype dies down, and the stock starts a slow slide.
Looking at the financial side of things – Lithium Americas owns 49% of a South American mine that its Chinese partner has taken a controlling interest in. For this, the Chinese have paid Lithium Americas $16 million in cash along with a $40 million non-interesting-bearing loan. Second, Lithium Americas has teamed up with miner North American Coal who will provide $3.5 million in cash and $50 million in equipment for the proposed mine. The way Lithium Americas is securing funding mimics how the company successfully secured capital for its South American mine, aka successful partnerships. We expect the company to do the same again. If the Bureau of Land Management approves the land for use, one could expect a partner announcement eventually.
How We Are Playing It
The vast bulk of our play is via common stock in LAC, as well as a few November $10 calls and a few Feb $10 calls. Obviously, options can be very risky, so unless you know what you are doing please consult a financial advisor before making any options plays.
We have also sold weekly puts at a $7.50 strike. We view this as an attractive entry point and are more than willing to get paid to own the stock at that price. We have also sold the $12.50 and the $15 covered weekly calls against a small portion of our stock, as the odds of the stock going from $9 to $12.50-15 in that time frame are unlikely.
Lagniappe: The CTO of Lithium Americas, Rene LeBlanc, formerly worked for Tesla.
Disclosure: I am/we are long LAC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
