Reversing much of its gains from November, lithium stock Lithium Americas (LAC 1.73%) tumbled 25.9% in the month of December, according to data provided by S&P Global Market Intelligence. Lithium prices continued to soar, and Lithium Americas was busy building a cash pile, so why did its shares sink?
Lithium Americas shares dropped sharply the very first day of December as investors took note of the company's latest move to raise debt. Lithium Americas raised $258.75 million in debt in the form of convertible senior notes in a move investors couldn't seem to understand given that the company was already flush with cash -- it held cash and cash equivalents worth nearly $482 million at that time.
Lithium Americas, though, simply rolled over old debt at a lower interest rate and used part of the proceeds to repay existing debt worth $205 million. Having done that, Lithium Americas' CEO Jon Evans said the company had "significantly enhanced" its balance sheet "while minimizing potential dilution to shareholders and reducing interest cost." Evans also said the company had removed "security" over its Thacker Pass by repaying old debt, and had therefore gained greater flexibility in advancing the project.
Thacker Pass in Nevada is known to house the largest lithium resource in the U.S. but has been embroiled in legal and environmental concerns for years. In late 2021, Lithium Americas said it expects to receive final permits and start construction at the mine this year.
2022 could be a pivotal year for Lithium Americas if it can start Thacker Pass. Meanwhile, the company is expected to close its acquisition of Canada-based Millennial Lithium in an all-stock deal worth $400 million this month. The acquisition includes the Pastos Grandes lithium project in Argentina that's projected to start production in 2024 with an annual capacity of 24,000 tons of battery-grade lithium carbonate. By mid-2022, Lithium Americas also expects to start production at Cauchari-Olaroz mine in Argentina, in which it owns a 49% stake.
So if things go as planned, Lithium Americas should be able to produce its first lithium and generate its first revenue this year. This comes at a time when demand for electric vehicles that run on lithium-ion batteries is booming and lithium prices are sitting at record highs. But after Lithium Americas shares more than doubled in 2021, much of the optimism was already baked into its stock price, which is also why the stock came under a bit of selling pressure as 2021 drew to a close.