The Toronto Stocks Exchange houses the largest number of mining stocks. If you were to invest in the strength of the market, which mining stocks would you pick? Gold, coal, aluminum, copper, lithium? I would pick lithium amid the electric vehicles (EV) revolution. Lithium is an important metal for lithium-ion batteries that power EVs. The EV revolution is just picking up, and automakers have already faced a shortage of battery-grade lithium.
Among the battery-grade lithium stocks trading on the TSX, Sigma Lithium stock has surged 1,540% since 2021. This surge came throughout the expansion and development of the battery-grade lithium mine Grota do Cirilo. Today, Sigma is the fourth-largest lithium producer in the world and a potential acquisition target of Tesla.
A hidden gem in mining stocks
Looking at Sigma’s growth trajectory, I am bullish on Lithium Americas (TSX:LAC) for three reasons.
1. Thacker Pass Project
Lithium Americas has been in the limelight for its Thacker Pass Project, which is believed to have the largest lithium resources in the United States.
LAC has approved a construction budget of $125 million through Q3 2023 and expects to secure more funding from the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program. Moreover, it has already secured $320 million from General Motors.
The Thacker Pass Project is well-funded and on track to commence its first production three years from now, in the second half of 2026. Sigma’s stock price rally began two-and-a-half years before the commencement of production. So Lithium America’s stock price rally could begin in the next 6-to-12 months.
2. Caucharí-Olaroz project
Other than America, Lithium Americas also has two projects in Argentina – the Caucharí-Olaroz project (of which it owns 44.8%) and Pastos Grandes project.
The Caucharí-Olaroz project has commissioned and produced its first lower than battery-grade lithium carbonate. The company is placing additional purification processing equipment and expects to start processing battery-grade lithium carbonate by the first quarter of 2024. The project can produce 40,000 tonnes per annum but will take time to ramp up the production to its capacity.
Pastos Grandes project is currently under development planning. LAC expects to reach the construction decision later this year. To enhance the efficiency of this project, LAC acquired the adjacent Sal de la Puna project’s owner Arena Minerals, in an all-share deal. The acquisition saved LAC $604 million in cash reserves, which it needs to develop all these mines.
3. Lithium Americas’ split up
To add to the synergies, Lithium Americas is separating its United States and Argentina business units into two public companies. This split up will unlock value for shareholders as any delay or drag in one project won’t impact the development of the other. This split-up is expected to be completed in 2023.
What to expect from Lithium America’s stock?
Mining stocks are cyclical as their stock price is influenced by metal prices, which are governed by demand and supply forces. Lithium prices have been falling since November 2022 as the semiconductor supply shortage began to ease, and EV companies increased production. LAC stock also decelerated since November 2022 with a few bouts of recovery on updates around the mining projects.
High lithium prices also are good for the short term, but not sustainable in the long term as they make EVs less attractive. Once the above mining projects come online, LAC’s stock price will probably stabilize. But until then, there is significant growth potential as the automotive market faces a lithium shortage. Even if EV sales slow, batteries will continue to be in demand.
LAC has the potential to grow double-digit in the next three-to-five years and then stabilize. The stock is currently trading near its 52-week low, a good point to buy and hold till 2026.
