Lithium Americas, a leading company in the lithium industry, recently made headlines as its shares plunged following an equity issuance announcement. The stock, which Morningstar still considers undervalued, experienced a significant drop in value due to the issuance of up to 63.25 million shares at $5 per share.

The equity raise is aimed at fully funding the phase 1 capital expenditures for the Thacker Pass project. While this move is crucial for the company’s financial needs, it comes at a cost to existing shareholders as it is highly dilutive. As a result, Morningstar has adjusted its fair value estimate for Lithium Americas from $18 to $12 per share.

The proceeds from the equity issuance will enable Lithium Americas to meet the equity requirement for its substantial loans and further project development. With additional funding secured, the company is well-positioned to advance its operations and construction plans for the Thacker Pass project.

Despite not generating any revenue currently, the strategic decision to raise equity for project financing without additional debt is seen as a prudent move. However, the company may need further funding for operating expenses in the coming years until the project starts generating revenue.

Following the announcement, Lithium Americas’ stock experienced a notable decline of 26%. Despite this drop, Morningstar believes that the shares are undervalued and have the potential to increase in value as the lithium market evolves. The completion of project financing is expected to positively impact the stock’s performance, especially in response to lithium market dynamics.

Looking ahead, the company’s future actions may include potential additional equity issuances to support ongoing operational needs. With a focus on project development and revenue generation, Lithium Americas is poised to navigate the evolving market landscape and capitalize on emerging opportunities.