Lithium Americas Corp. (TSX: LAC) is a mineral mining company, which is developing three lithium production assets, two brine resources located in northwestern Argentina and a clay resource in Nevada, U.S. While the company has no current lithium production, we expect the first Argentina resource, Cauchari-Olaroz, to enter production in late 2022. 

Key highlights 

• No Revenue recognition: The company is still at a development-stage and is focused on advancing to production, but as of now it does not generate any sort of revenues from operations.

• Rising debts: In the reported period for Q3 2021, the company’s Debt increased 42.2% to USD 172.3 million compared to USD 121.2 million in the previous corresponding period. Rising debts with no source of earnings is a cause to worry.

• Negative cash flows In Q3 2021, the company had used higher cash in operations at USD 36.7 million compared to USD 23.7 million in Q3 2020.

• Poor financial performance in Q3 2021: The company’s operating expenses skyrocketed to USD 16.6 million against USD 5.7 million in the pcp, the rise was mainly due to higher exploration and evaluation expenditures, which stood at USD 12.3 million V/s USD 3.2 million respectively. Primarily due to higher operating cost, the net loss also elevated to USD 17.2 million compared to USD 6.4 million in Q3 2020.

• Stretched valuations: Recently the stock has generated robust rally in its share price, where it rallied ~46.3% and ~141.8% in the last three month and six months, respectively. We believe this rally has stretched the stock valuation parameters. Currently its shares are available at an NTM Price/Cash Flow multiple of 59.7x compared to the industry (Metals & Mining) median of 2.1x, while on NTM EV/Sales multiple, it is trading at 32.4x compared to the industry median of 1.8x. This implies that the shares are highly overvalued against the industry.
  

Stock recommendation

The company just released its Q3 2021 financial results, which showed higher operational expenses and a bigger net loss of USD 17.2 million, compared to USD 6.4 million in Q3 2020. Funding for operations is likely to remain strained due to a lack of revenue generating. The group's construction efforts at Cauchar-Olaroz are progressing, with initial production of 40,000 tonnes per annum lithium carbonate equivalent expected in mid-2022. After considering the company’s boosted net losses and weak operations, investing in this stock at such uncertain levels should be taken with calculated approach, hence we prefer to remain on the side-line and recommend a "Watch" stance on the stock at the closing price of CAD 40.46 on December 13, 2021. 

One-Year Technical Price Chart (as on December 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

Sigma Lithium Corp

Sigma Lithium Corp (TSXV: SGML) is a lithium exploration and development company with properties located in the State of Minas Gerais, Brazil. The company also holds interests in Grota do Cirilo, Sao Jose, Santa Clara, and Genipapo projects.

Key Highlights

• No Revenue recognition: The company is still at a development-stage and is focused on advancing to production, but as of now it does not generate any sort of revenues from operations.

• Negative cash flows In Q3 2021, the company had used higher cash in operations at CAD 3.1 million compared to CAD 1.1 million in Q3 2020.

• Poor financial performance in Q3 2021: The company’s operating expenses skyrocketed to CAD 10.9 million against CAD 0.3 million in the pcp, the rise was mainly due to higher General and administrative expenditures, which stood at CAD 11.4 million V/s CAD 0.3 million respectively. Primarily due to higher operating cost, the net loss also elevated to CAD 11.4 million compared to CAD 0.2 million in Q3 2020.

• Highly Competitive Industry: The mining business is competitive at all stages and necessitates a substantial amount of money as well as technical and operational resources. Mining equipment, supplies, and qualified service providers are also in great demand, especially in Brazil, where mining workers are in short supply.

• Stretched valuations: Recently the stock has generated robust rally in its share price, where it rallied ~92.6% and ~130.8% in the last six months and nine months, respectively. We believe this rally has stretched the stock valuation parameters. Currently its shares are available at an NTM EV/Sales multiple of 27.0x compared to the industry (Metals & Mining) median of 1.8x, while on NTM EV/EBITDA multiple, it is trading at 85.1x compared to the industry median of 2.5x. This implies that the shares are highly overvalued against the industry.

Stock recommendation

The company just released its Q3 2021 financial results, which showed higher operational expenses and a bigger net loss of USD 11.4 million, compared to USD 0.3 million in Q3 2020. Funding for operations is likely to remain strained due to a lack of revenue generating. The Company continues to advance towards initiating commercial production in 2022. After considering the company’s boosted net losses and weak operations, investing in this stock at such uncertain levels should be taken with calculated approach, hence we prefer to remain on the side-line and recommend a "Watch" stance on the stock at the closing price of CAD 11.75 on December 13, 2021.

One-Year Technical Price Chart (as on December 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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