Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Lithium Argentina LAR reported first-quarter earnings. Despite lower lithium prices, the company is realizing less of a discount to spot prices due to improving product quality. Shares were down 9% at the time of writing, as the results came in below consensus estimates.
Why it matters: Lithium Argentina is ramping up production at the Cauchari-Olaroz project, its only asset in production. As the first phase ramps up, we expect more variable operating costs and product quality.
Over the next couple of years, we expect costs will fall while product quality improves, which will reduce the quality discount to spot pricing and improve unit profits even if lithium prices remain flat.
The bottom line: We reduce our fair value estimate to C$11 per share, due to our outlook for a delay in the start of both the Cauchari-Olaroz phase 2 expansion and the Pastos Grandes project.
At current prices, we view shares as materially undervalued, trading at less than 25% of our updated fair value estimate and in 5-star territory.In our view, the market valuation implies Lithium Argentina and joint venture partner Ganfeng do not move forward with either the Cauchari-Olaroz expansion or the Pastos Grandes project due to low lithium prices.
Big picture: Over the long term, we remain bullish on lithium. We forecast growing global EV sales, and the buildout of energy storage system batteries will drive lithium demand to 3.2 million metric tons by 2030 from 1.2 million in 2024.
The lithium market is currently oversupplied, but we expect demand will grow faster than supply in 2025 and 2026. This will cause the supply deficit to shrink. We expect the market will return to balance by the end of 2026, driving prices higher.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
