A Surge in Call Buying, Inverted IV Skew for a High Risk, High Reward Lithium Play
Lithium Americas (LAC) has seen call open interest rise to 142,000 on 8/11 which is a 55% jump from last week and another 43,000 calls traded on 8/12. LAC has seen buyers active in September $17.50 calls and the far OTM September $25 calls have seen 15,000 open. LAC has a lot of open interest in November including 5000 of the $22.50 calls bought on 8/11. LAC has a deeply inverted bullish skew of -8.7%. LAC shares are up 52.5% YTD and have risen 35% the past week moving out of a multi-month base on heavy trading volume. Shares also moved through VWAP off its January highs when shares traded as high as $28.75 with retracement levels at $20.30 and $22.30. LAC is developing two lithium projects in Argentina and the USA and has $500M in cash on the balance sheet. Caucharí-Olaroz is on-track for mid-2022 production with more than 80% of the capex budget already committed and LAC partnered with Ganfeng Lithium. LAC is also advancing Thacker Pass, the largest known lithium resource in the US. Both projects would have operating costs at the low end of the cost curve. LAC expects all major permits for Thacker Pass by 2022 with construction to begin in early 2022. LAC is looking at least 20,000 tons of lithium carbon equivalent on an annualized basis at Caucharí-Olaroz. Thacker Pass could start commercial operations in 2024 and when fully operational, will be capable of producing 60,000 tonnes of lithium carbonate annually.
LAC management expects supply to be chasing demand for many years to come with the increase in Electric Vehicles. Management also noted the potential for a partnership of its fully owned Thacker Pass project. LAC currently has a $2.7B market cap with EBITDA seen reaching $215M by FY24 and revenues of $365M. B. Riley started shares at Buy in March with a $25 target.
LAC clearly carries plenty of risk as a pre-revenue company with permit/execution risks but the upside could also be compelling as the fundamentals for Lithium are very strong.