Lithium Americas doubles on government stake news, but some think the gains overdone

Canadian investment bank Canaccord Genuity has downgraded Lithium Americas to sell amid a sharp rally in the stock after the U.S. government became a shareholder. Analysts believe the gains are excessive, while other banks continue to recommend buying the miner because of Washington’s backing.

Canaccord Genuity lowered its rating on Lithium Americas to "sell" with a target price of CAD6.50 ($4.70) per share, implying 32% downside from the last close, CNBC reports.

Analyst Katie Lachapelle wrote that the recent run-up in the stock price is "overdone" and "does not accurately reflect the valuation implications of the revised deal with the Department of Energy." 

Lithium Americas shares fell more than 4% in U.S. trading yesterday, October 2, though they remain up 131% since the start of this year.

The Department of Energy will receive a 5% equity stake in Lithium Americas and a 5% economic interest in the large Thacker Pass lithium mine in Nevada. The project is being developed with General Motors, which holds a minority interest and has agreed to buy offtake, CNBC reports.

The Trump administration got the stake after renegotiating a $2.2 billion DOE loan granted under President Biden. In exchange for the stake, the government deferred $182 million in payments over the first five years.

Canaccord Genuity says the changes are limited. While they provide short-term financial flexibility, Lithium Americas must also place $120 million in a government reserve account within a year – a requirement that outweighs the benefit, according to Lachapelle.

In addition, the shares were issued through warrants with an exercise price of just $0.01 per share, which Canaccord Genuity warns will dilute existing investors. The bank also noted the absence of "major additional benefits" such as an above-market price floor, unlike the Department of Defense’s July deal with rare-earth MP Materials.

CNBC recalls the Pentagon took that equity stake in MP Materials in July, providing a price floor and agreeing to buy offtake from a new facility the company will standup.

Wall Street analysts are split on the outlook for Lithium Americas. Deutsche Bank has reiterated its hold rating with a target price of $6.30 per share, about 10% below the latest close. BMO Capital Markets also maintained its "market perform" recommendation while lifting its target price to $5.00 per share, which suggests nearly 29% downside.

Stifel Canada took the opposite view, keeping its "buy" rating on the stock following the news about the U.S. government taking a stake. Its $7.00 per share target price is in line with Lithium Americas’ close on Wednesday, October 1.

The AI translation of this story was reviewed by a human editor.