Orocobre
About the author:
- Author name:
- By Chris Brown
- Job title:
- Senior Analyst
- Date posted:
- 26 September 2016, 11:18 AM
- Sectors Covered:
- Junior (Emerging) Resources
Olaroz production, costs and guidance
The Olaroz lithium carbonate project (Orocobre – 66.5%) produced 6,903t of Lithium Carbonate (LCE) in FY15/16, and production of 3,000-3,200t is projected for the September quarter, with FY16/17 guidance of 15,000t. With nameplate capacity of 4,375t per quarter projected for calendar 2017 we model FY16/17 production of 15,850t of LCE. Current cash operating costs are reported as US$3,555/t, and projected to fall towards US$2,500/t at nameplate capacity. Orocobre also reported that the Stage 2 expansion – doubling capacity for an estimated US$140m capex – is tentatively projected to commission late 2018, coming on line in 2019.
Operational cashflow
ORE projects a price of US$10,000/t of LCE for the short term, with a medium-term range – 3-5 years – of US$10,000-15,000/t. A margin of US$7,000/t LCE in the short term could be expected to deliver EBITDA to the JV of US$120m per year and fund the expansion of production (US$140m), and/or in part repay ORE's US$104m in loans to the JV. After a number of plant moves, upgrades and refurbishments through 2015, coupled with a weak market for its products, ORE reports that Borax Argentina was profitable at the EBITDAX level in the June 2016 half. We model a marginal loss after D&A, interest, tax and corporate costs for Borax Argentina, which is in a position to quadruple production at minimal capital costs. We have not incorporated any value for a potential Lithium Hydroxide development, nor for recovery of potash from the Olaroz brine.
Updated valuation and investment view
Given the focus on Lithium demand and supply, our share price target is a 10% premium to our ORE valuation. The share price is subject to the usual risks – commodity price, exchange rate, operational, geographic, regulatory and fiscal, and market sentiment both to the broader market and to this sector.
We reiterate that Orocobre remains our preferred investment in the Lithium sector. For those with a positive view on Lithium, it's an Add.
More information
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Disclaimer(s): Analyst owns shares.
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