Lithium Americas Corp (NYSE: LAC) is in the red this morning after a senior Canaccord Genuity analyst said the Trump administration’s stake in the lithium miner is not a reason to load up on its stock.
In fact, if anything, the government deal is actually negative for the Vancouver-headquartered firm, Katie Lachapelle added as she downgraded LAC shares to “sell” on Thursday.
Despite today’s dip, Lithium Americas’ stock remains up nearly 200% versus its year-to-date low.
Why Canaccord cautions against buying LAC shares
The Trump administration is reportedly acquiring 5.0% of Lithium Americas as well as its Thacker Pass project in Nevada.
As part of that agreement, the Department of Energy (DOE) has agreed to defer loan repayments worth $182 million for the NYSE-listed firm.
However, “the recent run-up in LAC shares is overdone and doesn’t accurately reflect the valuation implications of the revised deal with the DOE,” Lachapelle told clients in her latest research note.
According to her, the federal stake could actually end up diluting Lithium Americas shareholders. DOE is building the equity stake through warrants priced at only one cent per share – essentially giving it a near-free entry into the stock.
This structure “threatens to erode value for existing shareholders without offering material upside,” the Canaccord analyst noted.
Unlike the government’s deal with MP Materials, which included a price floor and a guaranteed offtake, the Lithium Americas shares’ agreement lacks such investor-friendly terms.
Why else does Lithium Americas stock remain unattractive
Canaccord recommends treading with caution on LAC shares because the revised $2.2 billion loan backing the Thacker Pass lithium project in Nevada includes only modest changes.
While the government agreed to defer $182 million in repayments over the first five years, Lithium Americas must now deposit $120 million into a reserve account within the next year, which the analyst sees as a net negative.
“The short-term flexibility is outweighed by the immediate cash demands,” she added in her report.
Lachapelle fixated on how the equity and economic stakes granted to the government came without substantial concessions, making the deal less attractive than it initially appeared.
In her view, the miner’s capital structure is now more complex, but not meaningfully improved, which makes Lithium Americas shares’ not particularly attractive to own especially for the investors looking to start in the stock market.
Other Wall Street firms agree with Canaccord on LAC
All in all, the federal backing may lend credibility to Lithium Americas’ long-term ambitions, but Canaccord warns that the LAC stock valuation has run ahead of fundamentals.
Its $6.50 price target does not indicate potential for any further upside in Lithium Americas’ shares.
Note that other Wall Street analysts also agree with Katie Lachapelle’s bearish stance on the mining stock, with a consensus “hold” rating and a mean price objective of $5.76, warning of significant further downside from here.
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