On Friday, Scotiabank made an optimistic shift in its perspective on Lithium Argentina (NYSE:LAAC), upgrading the stock from Sector Perform to Sector Outperform and setting a new price target of $8.00. The adjustment comes after a comprehensive review of the company's financials and operations, alongside industry trends.
The upgrade was influenced by several key factors, beginning with a revised price deck for lithium carbonate equivalent (LCE) to $20,000 per metric ton, down from $25,000, and an increase in the discount rate from 8% to 10%. Additionally, Scotiabank aligned LAAC's valuation multiple to 1.0x net asset value (NAV), a move consistent with their recent revaluation of peer companies.
Scotiabank's analysis also considered LAAC's recent financial activities, highlighting a significant reduction in near-term financing risk. This was attributed to the sale of a 15% stake in the Pastos Grandes (PG) project to Ganfeng for $70 million, which also included Ganfeng's assistance in restructuring LAAC's debt.
The collaboration between LAAC and Ganfeng is seen as a positive step, as it could lead to further development of the PG basin and surrounding areas with an eye on scalability and potential direct lithium extraction (DLE) technology.
Despite a slight negative adjustment in the 2024 volume guidance, which now anticipates 20,000 to 25,000 metric tons on a 100% basis, the analyst noted that the Caucharí-Olaroz project is expected to run near full capacity on a limited basis due to weather-related power disruptions.
However, LAAC projects to meet nameplate capacity by the end of the year. The forecast for positive cash flow operations in 2024, supported by reduced general and administrative expenses and discretionary spending, partially mitigates concerns over the volume guidance.
The analyst concluded with an endorsement of LAAC's strategic partnership with Ganfeng, recognizing it as a key factor in the company's ability to develop its assets with significant scale and efficiency.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.