Should you sell your Lithium Americas stock?

National Bank Financial analyst Mohamed Sidibé said Lithium Americas’s (Lithium Americas Stock Quote, Chart, News, Analysts, Financials NYSE:LAC) new agreement with the U.S. government underscores the strategic importance of its Thacker Pass lithium project and boosts the company’s financial and offtake flexibility.

As reported by the Globe and Mail, Sidibé maintained a “Sector Perform” rating on Lithium Americas’ TSX-listed shares and doubled his target price to a Street-high $10.00 from $5.00 The average analyst target is $8.25.

The Vancouver-based company announced that the U.S. government will acquire a 5% equity stake in Lithium Americas and a separate 5% stake in the Thacker Pass joint venture with General Motors. Sidibé said the deal “reinforces the strategic nature of the project” and provides greater flexibility around future offtake arrangements.

“We anticipated a direct government equity layer at the parent level with better repayment structure and the project level,” he said. “The agreement also provides for more flexibility around the GM offtakes, allowing LAC to enter into third-party offtakes on any volumes not purchased by GM. However, the agreement also does require LAC to fund the reserve account with an additional $120-million, which we expect to be raised in equity, specifically following the meaningful share price increase over the past week.”

Following the deal, Sidibé reduced Lithium Americas’ ownership in Thacker Pass to 59% from 62%, assumed execution of U.S. Department of Energy warrants, adjusted loan amortization, and lowered his project discount rate to 8% from 10% to reflect lower construction risk with government backing.

He noted the agreement falls “short” of the Trump Administration’s 2020 deal with MP Materials, in which the U.S. government invested US$400-million in equity through preferred shares and secured a 10-year offtake agreement with a price floor for critical magnetic materials.

Sidibé’s net asset value estimate rose 108% to $8.96 per share from $4.95, with the lower discount rate partly offset by equity dilution and reduced ownership interest. He also lifted his valuation multiple to 1.1 times from 1.0 times “to reflect the U.S. critical minerals premium now ascribed to LAC.”

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