Orocobre is expected to report the final strategy regarding Olaroz Phase 2 expansion and the Japanese lithium chemical plant
The sale of non-core assets and all-time high lithium carbonate pricing has assisted in boosting the companies balance sheet
The 2018-19 expansion plan will be the key driver to additional share price appreciation
Advantage Lithium's developments provide additional upside exposure to junior exploration activity in Argentina
With so many accomplishments achieved, Orocobre continues to focus on their aggressive expansion strategy which will be the platform for shareholder growth. Shareholders are waiting for the release of the details for final expansion plans in Argentina and Japan. This will allow shareholders to understand what the mid-term opportunity for stock price appreciation is. Preliminary data based on the doubling of Olaroz production, in Argentina could be a catalyst for share price to double. Further, developments with Advantage Lithium and the Japanese lithium chemical facility would allow for additional upside over the next 6-12 months. An increase in Advantage Lithium’s stock price rise to $2/ share in 2018, would add $60 million to Orocobre’s balance sheet in the form of marketable securities. Orocobre holds a 50% interest in the Cauchari project which will be reduced to 25% once Advantage produces a Feasibility Study in 2018. This 25% could translate into $75-100 million in value to Orocobre. Moving into 2018 and beyond there are multiple company specific drivers for stock price growth which will be disclosed by the end of the year. Further, as one of only a hand full of lithium producers, Orocobre has direct exposure to an all-time lithium carbonate price.
In the past month, shares in Orocobre (OTCPK: OTCPK:OROCF), a lithium mining company focused on its flagship Argentina Olaroz project, gained significant momentum as the stock rose from CAD$3/ share to CAD$5.00, representing an increase of around 65 percent. As discussed in The Lithium Rush – A Potential Under Supply Creates A Flurry Of Activities, a flurry of global automotive and political announcements helped to spur the recent trading activity in Orocobre and other lithium mining companies. Investors have been encouraged to invest into the lithium mining and exploration space as China, England, and France have committed to banning the sale of petro vehicles by 2040, which places pressure on automakers to shift their product strategy to include a higher number of electric vehicles. In turn, automakers of all sizes have announced their intentions to build electric vehicle and battery manufacturing facilities.
The increasing number of automakers planning to introduce electric vehicles has rattled the lithium supply chain as companies position themselves to benefit from the upcoming boom. Upstream companies such as LG Chem (OTCPK:OTC:LGCEY) who produces battery modules and cells have announced plans to expand global manufacturing capacity, while downstream lithium producers such as Orocobre have moved to increase both lithium carbonate production and product offering. In China, lithium carbonate pricing has been reported to be in short supply which has sent pricing to an all-time high in September.
In FY 2017, Orocobre had achieved approximately 11,000T LCE output for the first full year of production, but production still needs to increase by around 50% to reach the facilities nameplate capacity. Despite temporary set-backs, Orocobre is now positioned as a global low cost supplier of lithium carbonate capable of delivering further value to the industry and shareholders alike. In FY2017, the company had achieved profitability, received significant funding back from the joint venture, and had divested none core lithium brine exploration assets which will assist to finance the company's growth strategy in a non-dilutive. In addition, Orocobre has beaten dozens of junior lithium exploration companies to production which allows the company to seize existing opportunities around lithium carbonate shortages and high material pricing. Tight supply is expected in the years ahead which will ensure the company generates a significant amount of free cash flow from the Olaroz operation.
Outlined Rapid Expansion Strategy in the Puna Plateau and Japan
The management team has outlined an aggressive path forward which will boost shareholder value and cement the company's position in the global lithium supply chain. First, the company will be expanding the Olaroz project by doubling the current lithium carbonate annual production to 35,000T LCE. Second, the company will construct a 10,000T/ year lithium hydroxide plant in Japan with its current project partner, Toyota Tsusho (OTCPK:OTCPK:TYHOF). It is expected that the lithium hydroxide would be exported primarily for use in the manufacture of lithium batteries, strengthening the company's position within the global lithium supply chain. Third, the proposed annual product mix of lithium carbonate would be 17,500T battery grade from its existing operations, 17,500T industrial grade, of which 9,000T would be allocated to supply the upcoming hydroxide plant in Japan. Both expansion of the Olaroz project in Argentina and the hydroxide plant will construct in parallel with each other. Meaningful production is expected in calendar year 2019.
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