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Lithium Americas receives 29% higher price target from Byron Capital Markets

Published: 19:22 18 Apr 2011 BST

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Lithium Americas is seeing its fair share of positives today. After the Canadian company released a stellar preliminary economic assessment (PEA) on its Argentinean Cauchari lithium brine property this morning, the market has reacted.

Equity research firm Byron Capital Markets has increased its price target for Lithium Americas by 29% today, to $3.60, from the prior $2.80 target.

The vote of confidence was directly related to the company's PEA, which estimated much lower operating costs than anticipated by many, at just $1,434 per tonne. Byron had originally expected operating costs of $2,200 per tonne.
 
The preliminary assessment was based on solely the production of lithium carbonate, excluding the potential potassium and boron by-products of the project, which could add value.

"We have always believed that the place to be in this market is in the lower quartile of operating costs and based on this PEA, it looks like LAC will be in that quartile. Additionally, there is upside when potash and boron by-products are included in the equation," Byron said.

Byron also noted in the report that the higher-than-expected capital costs of the project will be muted by the terms of Lithium Americas' off-take agreements with Magna International and Mitsubishi Corp, as these partnerships could help secure interest-free debt.

Today's PEA, conducted by engineering firm ARA WorleyParsons, was based on a two-phase design plan for a 40,000 tonne per year lithium carbonate facility, and indicated an after-tax internal rate of return as high as 26%. Byron said it believes the property will be able to hit its 40,000 tonne target by 2018.

The project's after-tax net present value, at an 8% discount rate, was estimated at $715 million, based on a long-term lithium carbonate price of $5,500 per tone. Total capital costs for both phases of Cauchari are expected to be $399 million.

Lithium carbonate, a chemical compound of lithium, carbon, and oxygen, is used for the manufacturing of lithium-ion batteries, which are increasingly in high demand due to their use in a wide range of portable consumer electronic devices, from mobiles to iPads.

Depending on the design and chemical compounds used, lithium-ion batteries can produce over twice the voltage of an ordinary zinc-carbon or alkaline battery.

Lithium Americas' Cauchari project was defined in December as the third largest lithium brine resource in the world, with 5.3 million tonnes of measured and indicated lithium carbonate resources, plus an additional 2.7 million tonnes of inferred resources.

According to the PEA report, given the huge size of the resource, the project is expected to have a long 40-year mine life, which at 40,000 tonnes per year of lithium carbonate, would result in the depletion of only 50% of the measured and indicated resource.

Lithium Americas' shares were up by nearly 8% on Monday, to trade at $2.17 as of 2:02pm EST.

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