Orocobre Limited (ASX: ORE)

ORE Details

Expansion Efforts: Orocobre reported its first half production and recorded 6,072 of tonnes of lithium carbonate from its Olaroz lithium facility. The cash costs (on cost of goods sold basis) was down by 21% and was recorded at US$3,946 per tonne which was due to higher production volumes in the Quarter ending December 2017. It also came out with a full year production guidance which accounted to 14,000 tonnes of lithium carbonate. As on 31 December 2017, Orocobre had US$50.2 million of available cash after the release of further standby letters of credit from Sales de Jujuy of US$7.4 million. US$ cost inflationary pressure continued through the quarter with Argentina Peso devaluation against the United States dollar which is less than inflation. Orocobre and TTC Olaroz are well advanced with plans for a proposed 10,000 tonnes per annum of lithium hydroxide which will be built in Fukushima Province, Japan. Orocobre’s equity contribution after subsidies and proposed Japanese bank debt funding is expected to be approximately US$6 million. Subject to joint venture and Orocobre Board approvals and finalisation of financing and permitting, construction is likely to commence in mid-2018 and commissioning to start in late 2019.

The lithium market remained tight during the December quarter due to existing supply demand issues. Market expectations that increased volume of spodumene concentrate and direct shipping ore would result in increased volumes of lithium carbonate and lithium hydroxide were not realised due to a lack of conversion capacity and conversion efficiency in China; and despite of the widespread announcements of the conversion plant expansions in China, very little new capacity was added to the market this year due to the extended commissioning periods which are due in part to production lines adjusting to new/different feedstock.

Meanwhile, Orocobre retained 50% interest in the Cauchari Project of Jujuy province in NW Argentina and Advantage Lithium Corp (which has acquired a suite of exploration assets from ORE) has the right to increase its interest to a total of 75% by the expenditure of US$5,000,000 or production of a Feasibility Study.

With regards to Phase 2 expansion of Olaroz, the same is now underwritten by the announced equity and a proposed debt funding arrangement and it is forecasted that the expansion will increase to 25,000 tonnes per annum as compared to previously proposed 17,500 tonnes per annum. Moreover, the increased expansion plan will also retain the simplified design to remove the purification circuit from the incremental production with the proposed development of a lithium hydroxide plant in Japan. Recently, Toyoto Tsusho Corporation became a substantial holder of Orocobre Limited since 18 January 2018 by holding 31,228,010 shares.
 

Olaroz Project Milestone Summary (Source: Company Reports)
 
As per the latest fully underwritten 1 for 20 renounceable accelerated pro rata entitlement offer (at A$6.55 per share to raise A$79 million), the group has successfully completed the institutional component raising gross proceeds of approximately A$34 million, while retail entitlement offer opened on 23 January 2018, and is expected to raise approximately A$45 million. All the proceeds from this offer and placement together have been earmarked for funding Orocobre’s phase two capital expenditure at its Olaroz lithium project in Argentina.

ORE share price has increased by 125.3% in the past six months and by 4.21% in the past one week (as at January 31, 2018). Given the developments, we maintain a “Hold” recommendation at the current price of $7.15
 

ORE Daily Chart (Source: Thomson Reuters)

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