Why I am long on Orocobre:
- Plan to substantially increase the production volume
- Lithium is undersupplied in the market
- Geographically diverse customer base including Japan, South Korea, Europe, USA and China
- Olaroz continues to generate significant cash with an outlined expansion plan.
- Current price level can be a good investment point to Orocobre (in this year significantly down)
Risks in investment in Orocobre:
- Political risk in Argentina ( currently positive business climate with Mauricio Macri presidence until 2019)
- Risk with pond management, weather risk, high altitude issue
Orocobre is an Australian based company, which is building a substantial Argentinian-based industrial chemicals and minerals company through the construction and operation of its portfolio of lithium, potash and boron projects and facilities. Orocobre is dual listed on the Australian Securities Exchange ("ASX") under the symbol "ORE" and on the Toronto Stock Exchange ("TSX") under the symbol "ORL". The Company is included in the S&P/ASX 200 Index.
With its Olaroz lithium facitlity in the Jujuy province of Argentina Orocobre is well positioned to reap the reward of Lithium's growth. Together with partners, Toyota Tsusho Corporation (NYSE:TTC) and Jujuy Energia y Mineria Sociedad del Estado (JEMSE), Orocobre is now operating the first large scale lithium brine plant to be commissioned in approximately 20 years. Production was 2,784 tonnes in 2017 Q1 which is down by 21% compared to previous quarter. Production levels were affected by above average rainfall during summer months. With stable costs and increased sales prices, gross cash margins increased to US$6,646/tonne in the March quarter up from US$5,477/tonne in the December quarter and overall gross operating margins increased to 65%.
Based on the quertely review of Orocobre the company has major issues with lithium pond management, however the experts are eagerly working on to resolve the pond management issue. The changes in pond management are expected to delivery major improvements to the operation performance of the pond system, according to Orocobre's statement. The process to re-estabilishing the correct inventory profile is expected to be completed in August this year. The company continue to expect to produce 5,500-6,000 tonned by end of Q2 2017. The company does not provide furher guidance about volume increase, just states that production will further increase.
Altough the company produced less in Q1 than in Q4 2016, its sales increased 5%, thanks to the increased lithium carbonate price.
With rapid expansion of lithium-powered products the company is positioned well to further increase its revenue. Orocobore has diverse customer base all over the world market. The company develops a lithium hydroxid plant in Japan and conduct expansion studies for Olaroz facility to meet extensive demand of lithium. Therefore, I believe that Orocobre will be one of the winner in the lithium market.
Disclosure: I am/we are long OROCF.