Lithium Americas (TSX: LAC) (NYSE: LAC) (“Lithium Americas” or the “Company”) announced that it has entered into a purchase agreement (“Purchase Agreement”) with General Motors (NYSE: GM) (“GM”) pursuant to which GM will make a $650 million equity investment in Lithium Americas (the “Transaction”). In connection with the Transaction, the Company has provided an update on the construction plan for the Thacker Pass lithium project in Humboldt County, Nevada (“Thacker Pass” or the “Project”), including the release of an independent National Instrument 43-101 (“NI 43-101”) feasibility study (“Feasibility Study”).
Further details on the Transaction are reported in a joint release issued by the Company and GM. All figures presented are in U.S. Dollars.
- The largest-ever investment by an automaker to produce battery raw materials, with GM to become Lithium Americas’ largest shareholder.
- Lithium Americas to receive $650 million equity investment from GM consisting of:
- $320 million first tranche investment for common shares representing 9.999% of Lithium Americas before separation; and
- $330 million second tranche investment, contemplated to be invested in the Company’s U.S. business following the separation of its U.S. and Argentine businesses (the “Separation”).
- After the first tranche investment, GM will receive exclusive access to Phase 1 production through a binding supply agreement and a Right of First Offer (“ROFO”) on Phase 2 production.
- Investment supports the development of Thacker Pass, the largest known lithium resource in the U.S.
- Project estimated to supply lithium needed for up to one million electric vehicles (“EVs”) per year.
- Investment also supports the Company’s previously announced Separation by creating the foundation for an independent U.S. business focused on Thacker Pass and a North American lithium supply chain (“Lithium Americas (NewCo)”).
- Advancing Thacker Pass construction plan targeting 80,000 tonnes per annum (“tpa”) of battery-quality lithium carbonate (“Li2CO3”) production capacity in two phases of 40,000 tpa, respectively (“Phase 1” and “Phase 2”).
- Phase 1 production expected to commence in the second half of 2026.
- Project life of 40 years (“LOM”) utilizing less than 25% of the current measured and indicated (“M&I”) mineral resource estimate.
- Proven and probable mineral reserves of 3.7 million tonnes (“Mt”) lithium carbonate equivalent (“LCE”) at an average grade of 3,160 parts per million lithium (“ppm Li”).
- M&I mineral resource estimate of 16.1 Mt LCE at an average grade of 2,070 ppm Li.
- $5.7 billion net present value (“NPV”) at 8% discount and 21.4% internal rate of return (“IRR”), after-tax when using a price assumption of $24,000 per tonne (“/ t”) of Li2CO3.
- Phase 1 and Phase 2 capital cost estimates of $2.27 billion and $1.73 billion, respectively, are based on cost estimates from Q3 2022 and include a 13.1% contingency.
- Awarded the Engineering, Procurement and Construction Management (“EPCM”) contract for the construction of Thacker Pass to Bechtel.
- Thacker Pass is expected to create 1,000 jobs during construction and 500 jobs during operations.
GM has agreed to make an aggregate investment of $650 million in two tranches. In tranche 1, GM will acquire 15.0 million common shares of Lithium Americas (each, a “LAC Share”) at a price of $21.34 per share (the “Tranche 1 Subscription Price”), for gross proceeds of $320 million (“Tranche 1”). The funds from Tranche 1 will be held in escrow until certain conditions are met, as discussed in the Transaction Terms section below. If those conditions are met, the funds will be released to the Company and GM will own a 9.999% equity interest in Lithium Americas. Lithium Americas anticipates that the escrow release will occur by mid-2023.
Following the Separation and the satisfaction of certain conditions, GM has agreed to subscribe for shares of Lithium Americas (NewCo) at the then market price on the date of subscription, subject to a cap of 130% of the Tranche 1 Subscription Price (adjusted for the Separation) in an amount equal to $330 million (“Tranche 2”).
Lithium Americas has agreed to use the proceeds from the Transaction for the development of Thacker Pass.
OFFTAKE & INVESTOR RIGHTS AGREEMENT
Lithium Americas has entered into an agreement to supply GM with lithium carbonate production from Phase 1 of Thacker Pass (the “Offtake Agreement”) in connection with the escrow release of the Tranche 1 investment. The price within the Offtake Agreement will be based on an agreed upon price formula linked to prevailing market prices. The term of the Offtake Agreement will be 10 years from the commencement of Phase 1 production, with the option for GM to extend by an additional five years. GM will also have a ROFO on the offtake of Thacker Pass’ Phase 2 production.
As part of the Transaction, Lithium Americas and GM will enter into an investor rights agreement (the “Investor Rights Agreement”). GM will be required to “lock-up” their securities until the later of (i) one year after the Separation, or (ii) the earlier of (i) six months after the closing of Tranche 2, or (ii) the date Tranche 2 is not completed in accordance with its terms, provided that the foregoing lock-up restriction will not apply if the Separation does not occur (such date being the “Lock-up Outside Date”). The Investor Rights Agreement also provides among other things, for GM to be entitled to the following:
- If (i) following the closing of Tranche 1 and prior to the completion or termination of Tranche 2, GM owns any issued and outstanding LAC Shares, or (ii) following the completion or termination of Tranche 2, GM owns 10% or more of the issued and outstanding LAC Shares – the right to nominate an individual to serve on the Board of Directors of Lithium Americas;
- If (i) following the closing of Tranche 1 and prior to the completion or termination of Tranche 2, GM owns any issued and outstanding LAC Shares, or (ii) following the completion or termination of Tranche 2, GM owns (i) 10% or more of the issued and outstanding LAC Shares or (ii) own 5% or more of the issued and outstanding LAC Shares and is a party to the Offtake Agreement (or a similar agreement with Lithium Americas) and does not have a nominee on the board of directors of Lithium Americas – the right to have a nonvoting observer attend all Lithium Americas board meetings; and
- Until the later of: (i) the Lock-up Outside Date, and (ii) the date on which GM ceases to either (i) own 10% or more of the issued and outstanding LAC Shares, or (ii) owns 5% or more of the issued and outstanding LAC Shares and be a party to the Offtake Agreement (or a similar agreement with Lithium Americas) – the right to participate in any subsequent issuances of Lithium Americas securities to “top-up” its pro rata ownership of Lithium Americas.
In addition, GM will be subject to a standstill limitation whereby it will not be able to increase its holdings beyond 20% of the issued and outstanding LAC Shares until a period that is the earlier of (i) five years following the effective date of the Investor Rights Agreement, and (ii) one year following the date of the commencement of commercial production for Phase 1 (the “Phase 1 Effective Date”) as outlined in the Offtake Agreement.
U.S. DOE ATVM LOAN
As previously announced in April 2022, the Company submitted a formal application to the U.S. Department of Energy (“DOE”) for the funding of Thacker Pass through the DOE’s Advanced Technology Vehicles Manufacturing Loan Program (“ATVM”) designed to provide loans for facilities located in the U.S. for the manufacturing of advanced technology vehicles and qualifying components used in those vehicles. Lithium Americas believes that the specific terms of this investment and Offtake Agreement both demonstrate the Company’s commitment to supply lithium to U.S. domestic EV production in alignment with the principles of the ATVM and position the Company as a model candidate to receive the maximum potential benefit of the ATVM program. The proceeds from the DOE’s ATVM loan are expected to contribute a significant portion of the initial capital costs for Thacker Pass Phase 1.
Tranche 1 of the transaction will be structured through the initial issuance of 15,002,243 subscription receipts to GM, whereby each subscription receipt will, upon satisfaction of escrow release conditions, convert into one common share and 79.26% of a Tranche 2 Alternative Exercise Warrant (“Tranche 2 AEW”), with a Tranche 2 AEW exercisable into a common share at a price of $27.74 for a term of 36 months. The conversion of the subscription receipts will result in the issuance of all shares issuable for the Tranche 1 Investment and, through the shares issuable upon exercise of the Tranche 2 AEW, the allocation of all shares issuable under the Tranche 2 subscription. The escrow release conditions for the subscription receipts include delivery of a ruling under the Thacker Pass Record of Decision (“ROD”) appeal that does not result in vacatur of the ROD, and conditions related to water rights transfer for Thacker Pass among other customary closing conditions. Upon satisfaction of the escrow release conditions and the issuance of the Tranche 1 shares, the parties will execute and deliver the Offtake Agreement and the Investor Rights Agreement.
The parties will implement Tranche 2 either through the exercise of the Tranche 2 AEW or a purchase of shares under a second tranche subscription agreement (which would result in the automatic termination of the Tranche 2 AEW) that provides for the purchase $329,852,134.38 of shares of the Company at prevailing market price, to a maximum of $$27.74 per share (adjusted for the separation, if applicable). To the extent that GM completes an investment under one subscription alternative (either the Tranche 2 subscription agreement or the Tranche 2 AEW), the Common Shares will cease to be issuable under the other agreement. In addition to other closing conditions, Tranche 2 will be subject to a condition that the Company secure sufficient funding to complete the development of Phase 1 of the Thacker Pass Project as set out in the Feasibility Study.
Completion of the Transaction remains subject to customary regulatory approvals, including approval of the TSX and NYSE, and other customary closing conditions.
A copy of the Purchase Agreement, the Offtake Agreement and the Investor Rights Agreement will be available on the Company’s page on SEDAR at www.sedar.com and on EDGAR at www.edgar.com.
ADVISORS AND COUNSEL
BMO Capital Markets served as financial advisor, and Cassels Brock & Blackwell LLP, Dorsey & Whitney LLP and McCarthy Tétrault LLP served as legal counsel to Lithium Americas.
Morgan Stanley served as financial advisor to GM. Mayer Brown LLP and Osler, Hoskin & Harcourt LLP served as legal counsel to GM.
On November 3, 2022, the Company announced that it intended to advance a reorganization that will result in the separation of its U.S. and Argentine business units into two independent public companies. The Company continues to advance the execution plan for the Separation, targeting completion in Q3 2023.
For more details about the Separation, please refer to Lithium Americas’ press release on November 3, 2022.
Thacker Pass Feasibility Study results reflect operational and process improvements, including increased extraction rates from an optimized mine plan through new ore control strategy, an increase in sulfuric acid utilization by targeting illite clay with greater potential for increasing lithium extraction per tonne of sulfuric acid and increased crystallization steps to further remove magnesium impurities.
Other process and design improvements were made to further minimize the Project’s environmental impact, including, increased capacity to 80,000 tpa within approximately the same mining footprint as the permitted pit boundary and without increasing the size of the sulfuric acid plant, additional beneficiation and neutralization circuits to increase the neutrality of filter pressed tailings and implementing a tail gas scrubber utilizing a neutralization solution in the sulfuric acid plant to minimize emissions and reduce impacts to ambient air quality.