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Summary

  • Orocobre is building the first large scale “green fields” lithium brine project in approximately 20 years.
  • 93% of the physical construction is completed and on schedule for plant commissioning/start-up in August 2014.
  • Overview of Toyota’s involvement in the project, hybrid sales projections and battery manufacturing investment.

Orocobre Limited (OTCPK:OROCF) is an Australian-based industrial minerals company that has established a presence in the Puna region of northern Argentina. Orocobre is presently constructing and operating a portfolio of lithium, potash, and boron projects and facilities, with a core focus on the development of its flagship Salar de Olaroz lithium property. The project is expected to produce strong post ramp-up EBITA margins of an estimated $4,000/t Lithium Carbonate Equivalent (LCE), with operating costs in the $2,000/t LCE range, excluding any potash credits, versus LCE expected pricing of around $5,500-6,000/t. The project is expected to have initial annual production of 17,500 tonnes of LCE. The lithium carbonate produced at the Olaroz property is expected to end up in lithium-ion batteries that will power next-generation automobile.

The company recently issued a press release which provided an update at the Salar de Olaroz lithium property. These are the highlights of the construction update:

- The project is expected to be completed on budget.
- Physical construction is now approximately 93 per cent complete.
- A total of approximately $214-million has been spent or committed through executed contracts.
- As of June the company received all outstanding import approvals from the government of Argentina for the remaining major equipment
- The lithium carbonate plant commissioning/start-up is projected to be at the end of August, 2014, with commissioning/start-up.

Orocobre share price has been gaining attention as the company nears production. Share price has jumped off of its June 2014 low of $1.98/share to a current share price around $2.60/share, representing an increase greater than 35%.

Toyota's Involvement In The Project

In 2012, Toyota Tsusho Corporation (OTC:TYHOF) entered a definitive shareholders' agreement with Orocobre on the Olaroz Project which gave Toyota Tsusho a 25% interest. Toyota Tsusho, which is one of Japan's leading global trading houses, is 22% owned by Toyota Motor Corporation (NYSE:TM) and 11% owned by Toyota Industries (OTCPK:TYIDY).

$194 Million Lithium-Ion Battery Facility

The Nikkei Business Daily reported that Toyota Motor Corporation was planning to increase production of lithium-ion batteries by six times. It was also reported that a new production line was being planned at a cost of approximately $194M, allowing production to have an output capacity of 200,000 units per year.

Encouraging Early Sales To Lead To A 20% of Global Market Share

The Toyota Prius Plug-in Hybrid (PHEV), manufactured by Toyota Motor Corporation, was launched throughout select international markets in 2012. The Prius PHEV, based on a third-generation Toyota Prius, is outfitted with a 4.4 kWh lithium-ion battery system. Since the soft launch of the lithium ion model, publications have reported that world-wide sales of the Prius PHEV have exceeded 31,100 units. 15,103 units were sold within the USA, and, as the first Half of 2013, there had been 4,417 units sold throughout Europe. The total Prius PHEV sales represent over 136 MWh of battery capacity, an extremely bullish number for an emerging lithium supply chain.

Toyota's Chairman, Takeshi Uchiyamada, has stated that they are forecasting that the company's global market share for hybrids will soon increase from 13-14% to 20%.

Investment Thesis in Orocobre

In July 2014, Rockwood Holdings Inc (NYSE:ROC) agreed to be acquired by Albermarle Corp in a cash and stock deal worth $6.2 billion. In 2012, Rockwood Holdings announced a major expansion to double lithium production capacity. The company has invested $140 million in a new lithium carbonate production plant in Chile along with a $75 million investment to expand its lithium operation in the United States. These efforts would increase total annual production capacity to 50,000 t/yr of lithium carbonate equivalent. The updates were completed in 2013.

In my opinion with demand for lithium increasing and no new "Green Field" lithium projects commencing in the near term beyond Orocobre's Argentina project there could be additional demand for its stock. Further, the Toyota involvement in the project adds a credible household name and a mineral off take partner which further de-risks any concerns to do with the project. Orocobre presents ground floor exposure to an industry that is presently consolidating through M&A.

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Source: Orocobre Production On Schedule For August: Shares Up Over 30% In 2014