Orocobre Limited

Robust Performance in 1HFY19: Australian mining giant, Orocobre Limited (ASX: ORE) is under metals and mining sector. It is involved in production and exploration of minerals with focus on developing Lithium/Potash resources in Argentina. The company’s operations involve Olaroz Lithium Facility and the Borax Argentina S.A. Recently, the company has announced that Orocobre, Toyota Tsusho Corporation and Joint Venture Boards have approved the Final Investment Decision for the Naraha Lithium Hydroxide Plant to be built in Japan. ORE will hold seventy-five per cent economic interest in the project with operations to be managed by Toyota Tsusho Corporation. Construction of the Naraha Lithium Hydroxide Plant is expected to commence during H1 CY19 with commissioning to commence during H1 CY21.
 

Proportionally Consolidated Income Statement (Source: Company Reports)

The Group reported a net profit from continuing operations after tax of US$24 million in 1HFY19 as compared to US$8.2 million in the prior corresponding period. The Group’s net profit includes its share of net gains of joint venture of US$24.8 million. The cash balance of the company at 31 December 2018 stood at US$284 million, net cash of US$207.7 million.On the ratios front, the pre-tax ROA and ROE stood at 4.5% and 4.7% in 1HFY19, a YoY increase of 120 bps and 100 bps, respectively.

Company guidance: Going forward, the company expects full year production in FY19 will be approximately same as that achieved in FY18 for the Olaroz Lithium Facility. It has a production forecast of 35,000 - 40,000 tonnes for FY19 and capital expenditure forecast of ~US$1-2 million for FY19 for Borax Argentina. The stock has provided YTD returns of 8.20% with its past 3 months return at 6.52%.

Moreover, driven by robust half-year results on the back of strong balance sheet along with strong cash-flows generated from operations and respectable margins, the company looks decent for investing.

Considering the above factors, we maintain our “Buy” rating on the stock at CMP of $3.460 per share (up 0.875% on 12 April 2019).  
 

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