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The Natural Resources Hub Summary The core asset of Orocobre is the Olaroz brine lithium project, which boasts some of the lowest costs in the world and gives the company an enormous competitive edge.
Ongoing process optimization may deliver further improved gross operating margin.
We estimated the net asset value, earnings power value, and growth value, on the ground of an in-depth analysis of the properties, operations, and financial performance of the firm.
Based on the valuation, we discussed the margin of safety and risks associated with investing in this name and presented an actionable investment thesis. Why Orocobre It is a perpetual quest for investors to strike a subtle balance between potential Thesis on working capital management and profitability and hidden risk in stock picking.
Few sectors accentuate this point as much as the extractors of natural resources. At the least risky end are the mature players, the assets of which decline as production goes on; at the other extreme are the junior explorers which face a myriad of uncertainties - it is needless to say that any adverse development in the exploration projects may lead to a permanent loss of capital for investors.
According to the Goldilocks principle, it would be desirable to find the stalwart that has producing assets to fall back on yet demonstrates a visible growth potential.
TSX is just such a company. The company achieved the first commercial production of lithium carbonate in earlythus starting to generate cash flow after seven years of capital-draining exploration and development.
Without resting on its laurel of pulling off the first new brine lithium project on stream in 20 years, the company is in the process of doubling the nameplate production capacity. The second tier lithium producers, modified after Laurentian Research see here.
Orocobre quickly emerges as the lowest-cost producer, thanks to its high-quality asset, the Olaroz Project in Argentina Fig. With a low-cost structure, the company may well benefit from commodity price fluctuations in either direction. As an incumbent producer, it holds an advantage over the junior players in technological know-how, less capital-intensive project expansion, ready access to existing facilities, and better access to the market.
Lithium cost curve, after Argosy Minerals October presentation see here. However, to ascertain whether such a great business makes an excellent investment, we still need to examine the root cause of its competitive advantage, to assess its growth runway, to comprehend the ability and shareholder friendliness of the management, and, above all, to determine through valuation if an adequate margin of safety exists.
In this article, we attempt to conduct an in-depth survey of this emerging lithium producer, hoping to come up with a valuation-based investment thesis. From assets to resources 2.
The Olaroz Lithium Facility: We will forgo discussing the boron operation here except for stating that whatever value the boron assets have will be counted toward the margin of safety in the risk-reward analysis.
A map showing Orocobre properties in Northern Argentina, after company annual report of Fig. In the quarter ended June 30,Advantage started a well drilling program to appraise Cauchari by the end of Resources According to the definitive feasibility study completed inthe company has a measured and indicated resource of 6.
Exploration target may have 1. Lithium production Lithium production from brine is a complex process, as in the case of the Olaroz Project which we already reviewed in a previous article see here.
Gross margin was at With the former plan, the company seeks to scale up production at low risk simply by duplicating bores, ponds, and primary circuit on which it is already further down the learning curve; with the latter, it hopes to capture higher prices with lithium hydroxide production.
Both projects are scheduled to come on stream by November to 2Q Fig. The expansion plan includes the Olaroz scale-up and the Japan hydroxide plant, modified after Orocobre presentation of February 28, 4.
Lithium market demand and production capacity, after Orocobre annual report. Going forward, the company expects to capture better prices, as the products from Orocobre reach a wider range of customers, especially upon the planned lithium hydroxide plant in Japan coming on stream.
The robust cash flow enabled the company to pay down the Olaroz project debt borrowed from Mizuho, which on average has an interest rate of 4. The Olaroz project debt facility from Mizuho, the repayment of which is scheduled every six months until Septembermodified after company presentation of August 31, Unit costs On a per ton of LCE basis, the company fares pretty well.
As we said in a recent article"The management of brine movement from pond to pond, the control of evaporation time, with the end to achieve desired lithium concentration in the harvest ponds at high throughput, is a skill that can only be perfected through trial and error before an optimized routine is established.
Thanks to this corrective measure, lithium carbonate production is expected to rise significantly by 1Hto result in higher operating efficiency and lower operating costs going forward.
Further down the learning curve, the company will likely enjoy declining operating costs. So, at optimal efficiency, how low can the operating costs go?
The technical report on the Olaroz Project Jujuy Province see here provides a clue. The capital costs and operating costs as estimated in the Definitive Feasibility Study, modified after the "technical report on the Olaroz Project Jujuy Province" 6.People News.
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The core asset of Orocobre is the Olaroz brine lithium project, which boasts some of the lowest costs in the world and gives the company an enormous competitive edge. Skip to content. About.
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