Proactive Investors - Analysts at Stifel noted that the formal approval of a deal to bifurcate Lithium Americas Corp (TSX:TSX:LAC, NYSE:LAC)’s business helps the market gain a better sense of the enormous quality and rarity of its large asset base.
The Vancouver-based company’s board has approved the execution of an arrangement agreement for the reorganization Lithium Americas that will result in the separation of its North American and Argentine business units into two public companies.
“In our view, with the market significantly underappreciating/valuing the quality and scarcity of the current LAC asset base, we see the merits of this plan not least in helping the market gain clarity in valuation,” said the Stifel analysts.
The separation will establish an Argentina-focused lithium company (Lithium Argentina) to be headed by John Kanellitsas with flagship Cauchari-Olaroz alongside Pastos Grandes and Sal de la Puna.
Meanwhile, Jonathan Evans will head the North America focused lithium company (Lithium Americas) which will get the flagship Thacker Pass lithium project in Humboldt County, in Nevada, as well as the investments in Green Technology Metals Limited and Ascend Elements Inc.
The separation is expected to enhance the long-term prospects for each of the business units and provide a number of benefits, according to Stifel.
Lithium Argentina will be able to laser focus on the ramp-up of the Caucharí-Olaroz resource, along with the advancement and construction decision on Pastos Grandes and potential upside at Sal de la Puna.
On the other hand, Lithium Americas will be able to focus on construction and production of Phase 1 of Thacker Pass.
Under the plan, shareholders will retain their proportionate interest in Lithium Argentina, and receive newly issued shares of Lithium Americas (NewCo) in proportion to their current ownership of LAC, noted Stifel.
Stifel has a Buy rating on Lithium Americas and target price of $37.
Lithium Americas shares were up over 3% at $22.40 on the NYSE in morning trade.