In February, Australian based Orocobre Limited (OTCPK:OROCF) announced that the company would raise approximately A$50million through two spate transactions which included a $40 million placement to Australian and international institutional and accredited investors along with a $10million share purchase plan to existing shareholders. Canaccord Genuity (Australia) which is a well known investment company was appointed the lead manager and book runner for the deal.
Prior to the financing announcement Orocobre informed the markets that it had commissioned and is ramping up production at their lithium brine operation in Argentina dubbed "Olaroz". The project is expected to have initial annual production of 17,500 tonnes of LCE. Further, Olaroz has a sustainable long life, with the Feasibility Study considering 40 years production with only 15% resource extracted. The company also announced various positive updates to the investment community around the Olaroz project along general industry conditions:
· Flagship Olaroz lithium project has achieved first production.
· Final circuits of the lithium carbonate plant commissioned and now ramping up to Stage 1 production of 17,500 tonnes per annum by fourth quarter calendar year 2015.
- Lithium market conditions are strong.
- Supply constraints and market growth rate are leading to price increases.
- Olaroz is a high-margin, low-cost and long-life operation with significant expansion potential.
- Its large boron operations have over 40,000-tonne-per-annum production of boron chemicals and mineral concentrates.
- Borax Argentina's turnaround is in place.
- Growth initiatives are currently under way in borax products and minerals, and profitability is achieved in fiscal 2014.
- Additional value/growth is found in lithium, potassium chloride and boron in brines and minerals (Cauchari, Salinas Grandes and Borax Argentina).
- Long-term lithium, borates and potash markets look very strong
Short Term Entry Opportunity
Investors who are interested in opening a position in Orocobre could be presented with a good entry point in the near future. Shares in Orocobre are off their 52 week high of $3.31 and above their yearly low of $2.10 with current trading levels of around $2.50. Considering the recent financing which was partially due to delays in the ramp up of production there is going to be a midterm lack of interest in the shares. These comments are strictly in my opinion as I do not see a midterm catalyst for any bull movement in the stock price as existing shareholders are likely to subscribe to the share purchase plan. In addition, the vast majority of positive news is now out of the company.
A temporary pull back in the share price could be viewed as a solid long term buy for investors seeking exposure to the lithium brine production industry in light of growing fundamental demand for lithium batteries. In addition, to further strengthen the company's long term outlook, they announced that they have received an expression of interest from a variety of groups related to phase two expansions at Olaroz. Although I would not bet on letter of expressions to materialize it is encouraging that management is considering production expansion in the future.
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