Orocobre Earnings Summary

Orocobre reported results yesterday and Mr. Market, in the words of famous value investor Benjamin Graham, was very pleased!  The stock was up over 14% as a result.  We’d like to give our readers some of our high level thoughts after reviewing their announcement:  

  • The first item which stood out to us, was that their average price of Lithium received has been $9,763 for FY 17.  With current market pricing way above $10,000, we wonder, have they committed to previous pricing that is below market level?  The good news for now is that the company’s latest June quarter had pricing of $10,696 a tonne which is more in line with current pricing.  
  • Their gross margins of 62% is very strong with costs around $3710 but we wonder if these costs can be even lower.  In the future, perhaps they can go lower as they continue to gain expertise in their mining operations.  If we were investors, which we are not currently, this is something we would want to watch out for.  
  • The cash cushion that they currently have is something to be pleased about.  They now have over $51.6 million on hand which is up 42% from $30.6 Million in March. 
  • Orocobre followed in the footsteps of FMC, ALB, and SQM stating “global market fundamentals for Lithium remain intact with strong demand growth, tight supply, and attractive pricing.”  
  • Looking forward:
    • The company is talking about a stage two expansion to double their lithium production capacity to 35,000 tpa, and plans for a 10,000 tpa Lithium Hydroxide plant.  Hydroxide according to all of the latest earnings reports has become the preferred form of Lithium to produce for the Electric Vehicle marketplace.  Timing will really be everything here in terms of when this plant will be completed.  For investors, you’d want to see this as soon as possible to take advantage of the current pricing trends.  
    • Looking ahead, the company expects that their average pricing for Lithium will be somewhere above $10,000 which is a positive sign.   
    • Finally, and most interestingly, according to Orocobre’s analysis of the Lithium marketplace, a tight supply market will remain in existence until 2020.  See the chart below to see their analysis.  

As always, email us on our site www.thelithiumspot.com if you have any comments or questions!  

 

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