President Donald Trump’s decision to take an equity stake in Lithium Americas is not a good deal for the Canadian miner, according to Canaccord Genuity. Canaccord downgraded Lithium Americans to sell with a price target of $6.50 ($4.66 U.S.) in Canadian dollars, suggesting downside of 32% from its last closing price of $9.59 Canadian ($6.87 U.S.). Its stock has more than doubled since the White House first disclosed that it wanted a stake in the miner. “We believe that the recent run-up in the stock price is overdone and does not accurately reflect the valuation implications of the revised deal with the DOE,” analyst Katie Lachapelle told clients in a Wednesday note. The Department of Energy is taking a 5% equity stake in Lithium Americas and a 5% economic stake in its Thacker Pass mine in Nevada. The mine is a joint venture with General Motors , which holds a minority stake in the project and has agreed to buy offtake. The Trump administration took the stakes as Lithium Americas and GM sought to renegotiate the terms of $2.2 billion loan from the Department of Energy to support Thacker Pass. The government agreed to defer $182 million in repayment over the first five years of the loan in exchange for the stakes. But the Department of Energy only made “minor modifications” to the loan, Lachapelle said. The modifications give Lithium Americas near-term financial flexibility, but the requirement that the miner provide $120 million in a government reserve account over the next year outweighs the benefit, she said. And the Trump administration’s equity stake threatens to dilute Lithium America’s stock, Lachapelle said. The stake comes through warrants at an exercise price of one cent per share. “We also note that, unlike the MP Materials deal, this deal does not include any major additional benefits, like an above-market floor price,” the analyst said. The Defense Department took an equity stake in rare-earth MP Materials in July, providing a price floor and agreeing to buy offtake from a new facility the company will standup.
