What happened
Shares of lithium mining start-up Lithium Americas (LAC +0.00%) crashed on Tuesday, falling steeply in morning trading and never really recovering. The stock was down 12.9% on the day.
Image source: Getty Images.
So what
Despite being not yet operational, and having no revenue to its name (much less profits), Lithium Americas stock has had a terrific run as investors bid up lithium assets in anticipation of booming demand for the metal, which is used to make the batteries that power electric vehicles. Before today's decline, the stock enjoyed a three-day streak of constantly rising prices -- and over the past year, it's up 79%.
That all came to an end today, however, when investment bank Goldman Sachs warned of a coming "sharp correction" in the price of lithium (and cobalt and nickel, too).
With lithium currently priced at $60,000 a ton, Goldman sees that slipping 10% to $54,000 later this year -- a pothole that precedes a bigger fall off a cliff. By next year, the banker believes, lithium prices will average just $16,000, a staggering 73% decline from present-day prices.
Now what
For Lithium Americas, the timing of this Goldman Sachs prediction could hardly be worse. This is the year most analysts expect to see Lithium Americas produce its first revenue, but still not sell enough lithium to earn a profit. According to data from S&P Global Market Intelligence, 2023 is supposed to be the year the company starts turning revenue into profits. But if Goldman is right and lithium prices crater next year, then it seems unlikely the company will hit that milestone in 2023, either.
That being said, over the long term, Goldman is still bullish on lithium demand. Even if 2023 isn't the year Lithium Americas earns a profit, if the company can soldier through the year and emerge solvent on the other side, Goldman does believe that lithium prices could resume rising in 2024 and beyond.
Lithium Americas is not yet an operational miner. But as boom leads to bust and then to boom again, it is already falling into the pattern of a typical cyclical commodities play. Your best bet at profiting from such a stock is not to try to time the cycle, but to just trust that, over time, a well-run company will trend higher -- and just be patient and buy and hold for the long term.
